Kalshi faces legal battles as US sports betting hits $166B

According to Fortune, Americans spent more on sports bets last year than on movies, music, and museums combined. The total wagered in 2025 came to roughly $166 billion.

A growing share of that action is flowing to platforms that don’t call themselves sportsbooks. Kalshi is the most prominent of them, and it is now fighting courts, states, and tribal nations over what exactly it is selling.

A $166 billion market with a classification problem

The legal sports betting industry had a big year. American Gaming Association data shows $166.94 billion wagered through legal sportsbooks in 2025.

Those bets produced $16.96 billion in revenue. They also sent $3.71 billion in taxes to state governments, which explains why states are paying very close attention to where the money goes next.

Fortune reported that 35% of bettors say they now use traditional sportsbooks less. The reason, they say, is that prediction markets like Kalshi and Polymarket have changed how they place wagers.

That shift matters because prediction markets aren’t classified as gambling at all. Billions of dollars in sports wagering have started moving into a space that state regulators can’t see.

Kalshi operates as a federally designated market for event contracts, including contracts on sports outcomes. Its argument is that these contracts are swaps under the oversight of the Commodity Futures Trading Commission, not bets subject to state gaming law.

States see it differently. To them, a contract that pays out if a team wins looks a lot like a sports bet with a finance-flavored label on it.

The courts are splitting, and not in Kalshi’s favor

The core legal question is preemption. Put simply: does federal commodities law override state gambling rules when it comes to Kalshi’s contracts?

The Third Circuit previously sided with Kalshi on that question in a dispute involving New Jersey.

Then the momentum turned. On August 28, 2026, the Ninth Circuit ruled against Kalshi in a case involving Nevada.

A month later, the Sixth Circuit followed. On September 28, 2026, a unanimous panel rejected Kalshi’s appeal, clearing the way for Ohio and Tennessee to pursue enforcement.

The result is a map that disagrees with itself. One federal appeals court has backed Kalshi on preemption, while two others have affirmed state power to enforce gambling laws against it.

Not every state has gone straight to enforcement. Montana and Kalshi mutually dismissed their lawsuits on September 17, 2026, pausing enforcement while further federal appellate review plays out.

Tribes and consumers join the queue

State attorneys general aren’t the only ones taking Kalshi to court. The company also faces litigation over tribal gaming claims, including one involving the Ho-Chunk Nation in Wisconsin, as well as consumer class actions.

What this means for Kalshi, sportsbooks, and states

A circuit split is the kind of disagreement that often invites the Supreme Court to weigh in. Until the conflict is resolved, Kalshi’s ability to operate may depend on which side of a circuit boundary a customer happens to live in.

Traditional sportsbooks have a different worry. If 35% of bettors are already pulling back, the competitive threat isn’t hypothetical. It is showing up in customer behavior.

States have the clearest financial motive of all. Legal sportsbooks generated $3.71 billion in state taxes last year, and every dollar that migrates to an unclassified market is a dollar that stops contributing.

Polymarket is worth watching too. Fortune grouped it with Kalshi as one of the platforms reshaping how Americans bet, so any legal framework that emerges for one will likely color how regulators view the other.