Connecticut Federal Court Denies Kalshi's PI — With a Novel Argument: Sports Event Contracts Are Not 'Swaps' at All

Judge Vernon D. Oliver of the U.S. District Court for Connecticut has denied Kalshi's request for a preliminary injunction, allowing the state Department of Consumer Protection to enforce gambling laws against Kalshi's sports-event contracts. The ruling introduces a statutory argument that prior courts had not used as the primary basis for their decisions: Kalshi's sports contracts do not satisfy the Commodity Exchange Act's definition of a 'swap' because they depend on event outcomes — which team wins — rather than on whether an event occurs at all. The CEA defines swaps as instruments tied to whether an event 'occurs, fails to occur, or occurs to a particular extent.' Judge Oliver found that a contract paying out on the result of a match is structurally different from that definition, and therefore falls outside federal derivatives jurisdiction regardless of preemption doctrine.

For UK readers, the swap-definition argument is the most technically significant element. UK financial regulation distinguishes between contracts-for-difference (derivatives that track an underlying) and spread bets (which are taxed differently and regulated under Gambling Commission rather than FCA rules in most retail contexts). Judge Oliver's reasoning draws a comparable line: a prediction market sports contract is closer to a sports wager — a binary outcome tied to a result — than to a derivative tied to the economic value of an underlying asset. That distinction, if adopted by the Second Circuit or the Supreme Court, would mean prediction market sports contracts are gambling products as a matter of federal statutory interpretation, not just as a matter of state regulatory preference. UK regulators watching the US litigation landscape will note that this is exactly the framework the Gambling Commission and FCA have long applied: products whose value depends on sports outcomes are gambling, not financial instruments, regardless of how the provider is structured.

The Connecticut ruling creates a circuit split with the Third Circuit's April finding that Kalshi's contracts ARE swaps. A split on the interpretation of the same federal statutory definition is the clearest available trigger for Supreme Court review. Daniel Wallach, a US gaming law attorney, noted that Kalshi now has two simultaneous Second Circuit appeals — the New York case from July 7 and this Connecticut case — which could be consolidated for oral argument. Prediction market traders are pricing a 64% probability of Supreme Court review by year end. Judge Oliver also cited Kalshi's own marketing describing the platform as offering 'legal sports betting nationwide' as evidence that the products function as sports wagering regardless of formal regulatory classification — a detail that echoes how UK regulators have sometimes used operators' own commercial framing to determine product classification.

The broader picture for UK policy observers is that the US litigation, now producing five consecutive PI denials against Kalshi and a growing circuit conflict, is converging toward the conclusion that international regulatory norms on this question are broadly consistent. The article notes that jurisdictions including the UK and Canada treat prediction market sports contracts as gambling rather than derivatives — a characterisation that the Connecticut court's reasoning now supports from a US statutory interpretation perspective. At least 34 US states and territories have filed briefs backing state regulatory authority. The NFL season begins in September, which is the next major commercial test for the sector. The legal framework will likely remain unresolved for months — but the swap-definition argument, now embedded in a federal ruling, gives future courts a statutory hook that does not depend on the contested preemption doctrine that has produced inconsistent results across Arizona, Michigan, New York, and Connecticut.

Operators mentioned in this article

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Kalshi

First fully CFTC-regulated US event-contract exchange.

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