Kalshi's push into sports may be weakening its case that federal law blocks states from regulating prediction markets as gambling, former Consumer Financial Protection Bureau adviser Brad Lipton told Benzinga.Lipton now leads corporate power and financial regulation at the Roosevelt Institute. His latest analysis argues that state gambling laws should apply to much of prediction-market activity.Lipton said Kalshi's case is strongest when prediction markets look like financial products used by firms and sophisticated investors. Sports makes that harder: a product built around "some guy on his couch placing a bet" simply "looks like gambling" and "really undermines the argument" that the contracts are financial instruments rather than bets.

Sports Puts State Power at Center of FightKalshi argues its contracts fall under federal commodities law, meaning state gambling rules should not apply.If courts agree, prediction markets could largely bypass the state licensing, gaming taxes and consumer protections that govern sportsbooks.Kalshi has advertised itself as "the first app for legal sports betting in all 50 states," according to the Ninth Circuit.Sports accounted for more than 90% of Kalshi's 2025 trades and 95% of revenue, the court said.The Third Circuit backed Kalshi against New Jersey in April, but the Ninth Circuit went the other way in August, allowing Nevada to apply its gambling laws to Kalshi's sports contracts.Kalshi has asked the Ninth Circuit to reconsider.

Supreme Court Fight LoomsNew Jersey petitioned the Supreme Court on Sept. 2. Robinhood Markets Inc. (HOOD  ), which is fighting the same Nevada regulatory issue, filed a separate petition Sept. 10.Lipton said there is a "pretty good chance" the Supreme Court takes a case, citing the circuit split and the Trump administration's strong interest in the dispute.Still, the Court "does whatever it wants," he said, and could let the issue "sit and percolate."The Trump administration's CFTC has also sued multiple states seeking to apply their gambling laws to federally regulated prediction markets.Lipton called the CFTC's limits on prediction markets so far "really quite modest" and described the administration's broader approach as "super weak and halfhearted.""It's really clear whose side they're on in this whole thing," he said. "They're on the side of the platforms and the industry."Lipton said he sees a role for event contracts that sophisticated firms use to hedge financial risks. But if prediction markets focused on that rather than retail wagering, "we'd be having a totally different conversation," he said.

Business Model Could ChangeA victory for states would not necessarily kill prediction markets. Lipton said operators could comply with gambling laws state by state, but that would look very different from offering one federally regulated product nationwide.

"They'd have to change their business model a lot," he said, adding that state-by-state regulation could change it "in a fundamental way."Kalshi and Benzinga have an existing data collaboration agreement.