A Washington court has ordered Kalshi to halt sports, politics, and event contract trading for state users, with full geofencing required by September 2 or face steep fines. Other states and operators are also facing legal and regulatory pressure
Prediction market operators are facing renewed legal and regulatory scrutiny in several U.S. states, with Washington State now requiring Kalshi to block access to sports, politics, and other event contracts for local users. The move follows a court order that found Kalshi likely violated state gambling and consumer protection laws, and comes as federal and state regulators continue to debate the boundaries of event contract trading.
Washington Court Restricts Kalshi Access
Kalshi notified its users in Washington this week that they can no longer trade on sports, elections, politics, or other event contracts. This action follows a final order from a Washington state court judge earlier in August, which determined that Kalshi's operations likely ran afoul of the Washington Gambling Act and the Consumer Protection Act. The court's ruling, which formalized a preliminary injunction granted in July, requires Kalshi to implement comprehensive geofencing to block all Washington-based users by September 2. Failure to comply could result in daily fines of $120,000. Similar restrictions have already been imposed on Kalshi in Nevada and Michigan, where courts have ordered the company to either fully exit the market or restrict access to certain contracts.
Legal Disputes and Operator Tensions
Legal battles are not limited to Kalshi. Underdog, a company that recently agreed to a $1.3 billion sale to IG Group, is now facing a lawsuit from Aristotle International Inc. over the terms of its previous acquisition of Aristotle Exchange. Jeremy Levine, Underdog's founder, publicly acknowledged the lawsuit, stating that Aristotle is seeking additional compensation related to the sale. The dispute highlights the complex financial and contractual relationships that can arise as prediction market operators shift business models and ownership structures. Underdog's acquisition of Aristotle Exchange in March 2026 enabled its transition from daily fantasy sports to a focus on prediction markets, and the company was valued at $1.2 billion in a March 2025 funding round.
Product Changes and Congressional Response
Polymarket, another major prediction market operator, has launched a new combos product in the U.S., allowing users to combine trades across multiple markets for a payout multiplier. The rollout comes as demand for parlay-style products increases with the start of the football season. According to Ticker Tracker data, over 98% of Polymarket US trading volume is already focused on sports contracts, while Kalshi sees about 80% of its volume in sports or sports-related combos, a figure expected to rise with the NFL season. Meanwhile, in response to recent reports of wildfire-related betting, Rep. Michael Baumgartner (R-WA) has introduced federal legislation to explicitly ban prediction markets on wildfires, citing concerns that such contracts could incentivize arson. Democratic senators have also urged the Commodity Futures Trading Commission to take a firmer stance on these types of event contracts.
Industry Pushback and Regulatory Debate
Regulatory debate continues at the federal level, with Amanda Fischer, former chief of staff at the Securities and Exchange Commission and now COO of Better Markets, criticizing the expansion of sports contracts on prediction market platforms. Speaking to Indian Gaming Association leaders, Fischer argued that operators are attempting to legitimize their businesses ahead of potential Supreme Court action or political changes, and questioned whether prediction markets have broad appeal without sports contracts. The Commodity Futures Trading Commission has also been drawn into the debate, as states and federal agencies wrestle with the distinction between regulated event contracts and illegal gambling. For additional context on the legal challenges facing prediction market operators, see this coverage of Novig's lawsuits against multiple states: Novig's legal actions challenging state restrictions.
Event contracts, the core product of prediction markets like Kalshi and Polymarket, are agreements that pay out based on the outcome of a specific event, such as a sports game or election. In the U.S., these contracts are regulated differently from traditional sports wagers, with the Commodity Futures Trading Commission overseeing federally registered platforms. However, state gambling laws can still apply, especially when event contracts are deemed to resemble traditional betting. The ongoing legal disputes and regulatory actions highlight the uncertain status of prediction markets in many states, and players should be aware that access and product availability can change quickly as courts and regulators clarify the rules.
