Gambling regulators have ordered online financial exchange Kalshi to cease offering markets on sports, but the upstart company with White House connections has refused. Instead, it is picking up legal victories while continuing to allow customers to put money on their predictions in every state in the country. How the dispute plays out could shape the future of American sports betting.

Last Wednesday, the Oklahoma City Thunder were big favorites over the Minnesota Timberwolves at sportsbooks. Bettors needed to risk $350 to win $100 off a bet on the Thunder beating the Timberwolves in Game 5 of the NBA Western Conference finals. At the same time, users at Kalshi had to put up $350 to profit $108 off of a contract on Oklahoma City winning the game.

Gambling regulators, mindful of their tax revenue, say both instances are sports betting, a business that requires a license from the state to operate. “The purchase of the contract is indistinguishable from the act of placing a sports wager,” the Maryland Lottery and Gaming Control Commission wrote in a cease-and-desist letter sent to Kalshi on April 7.

Kalshi, which counts Donald Trump Jr. as a strategic adviser, disagrees and says it answers to the federal government, not the states. Sportsbook operators are paying close attention, envious of the nationwide access a handful of prediction markets are enjoying but also wary of risking their relationship with the states.

Kalshi has so far deflected legal challenges. Seven states have sent cease-and-desist letters to the company in recent months, alleging that its activities violate state law. In response, Kalshi has taken three state regulators to court, arguing that the company does not fall under their jurisdiction because it is a financial exchange, not a sportsbook. Judges ruled in favor of Kalshi in Nevada and New Jersey, allowing the company to continue offering sports contracts in two of the largest legal betting markets in the nation while the lawsuits are ongoing.

“If courts ultimately sided with Kalshi, it could open the door for a widespread use of sports-based event contracts outside of traditional sportsbook regulation,” Johnny P. ElHachem, an attorney at Holland & Knight who is an expert in gaming law, told ESPN. “For the sports betting industry, I think this presents both a competitive challenge and a regulatory dilemma. Who governs these markets and how they are policed are unresolved questions right now.”

Tarek Mansour, Kalshi’s CEO, told Axios in April that he didn’t know what his product “has to do with gambling.” “If we are gambling, then I think you’re basically calling the entire financial market gambling,” he added.

The company says one difference is that users are not going up against the house but instead trading contracts with other users on the opposite side of the proposition. While bookmakers charge a vig on losing wagers, Kalshi makes its money from a transaction fee, similar to a broker, and has no stake in the result. Kalshi’s transaction fees are typically cheaper than the vig at sportsbooks, something that attracts a sophisticated clientele, including professional bettors and market makers, who are compensated to “promote liquidity” on the site, according to the company’s user agreement.

“As far as the product is concerned, we are not the house,” Sara Slane, head of corporate development at Kalshi, told ESPN. “We are simply an exchange. So we sit between people that are buying contracts on a yes and a no side. We don’t win by people losing. And we don’t lose by people winning. We simply sit in between that transaction.”

Licensed sportsbooks operate in 38 states and the District of Columbia. In most states, the legal gambling age is 21. Kalshi is available to anyone over 18, and because it is regulated by the Commodity Futures Trading Commission, it can operate in all 50 states, including California and Texas, two states that have not legalized betting. “There’s no doubt that it’s gambling,” said Dustin Gouker, a former journalist turned gambling consultant who has covered the industry for a decade. “You can argue on the logistics, and whether it’s federally legal, all of that. But it’s gambling.”

Kalshi went through a six-year process to be certified as an exchange regulated by the CFTC, according to Slane. This allows them to list any new offerings, sports or otherwise, through a self-certification process without prior approval from the federal agency, which can later review products and flag them for violations.

A CFTC rule prohibits offering event contracts related to “gaming,” which Kalshi argued in court filings last year applied to sports. At the time, the company was facing scrutiny from the Biden administration about its offerings on political elections. “The only relevant legislative history, moreover, confirms that contracts on ‘sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament’ were precisely what Congress had in mind as ‘gaming’ contracts,” Kalshi’s attorneys wrote in a filing in January 2024.

A year later, Kalshi began offering sports contracts, including on the Super Bowl and the Masters, and advertised itself as the “First Nationwide Legal Sports Betting Platform.” Over the next five months, more than $1 billion was traded on 3.4 million sports propositions, according to a company spokesperson. It has roughly two million users, the spokesperson said, and is still available nationwide.

On the federal level, the CFTC has yet to weigh in. The commission canceled a public roundtable on prediction markets in April and has not rescheduled it. President Donald Trump’s nominee to lead the commission, Brian Quintenz, sits on the Kalshi board and owns stock in the company. Quintenz, who served as CFTC commissioner during Trump’s first term, is waiting to be confirmed by the Senate. Quintenz has said he will resign from the Kalshi board and divest his stock, if confirmed. The CFTC did not return a request for comment.

In letters to the CFTC, the NBA, NFL and MLB — who all have official partnerships with sportsbooks — voiced concerns about protecting the integrity of games in this new market.

“These contracts would mimic sports betting but seemingly without the robust regulatory features that accompany regulated and legalized sports betting and which help to mitigate threats to the integrity of our contests,” Jonathan D. Nabavi, the NFL’s VP of public policy and government affairs, wrote in a letter to the CFTC.

Currently, Kalshi offers contracts only on the results of games or tournaments, but the NBA wrote to the CFTC that it is concerned that the market will soon expand to individual player propositions or other types of contracts that pose a greater threat to sporting integrity. It also said that the self-certification process “allows most contract markets to simply proceed unchecked.”

The NBA added that exchanges such as Kalshi are not required to report suspicious trades to the leagues or cooperate with league-run investigations. “In the absence of these and other, related controls, leagues have little ability to monitor and understand integrity risks and issues if and when they arise,” wrote Alexandra Roth, the NBA’s VP and assistant general counsel of league governance and policy.

The NBA, NFL and MLB referred ESPN to their letters when contacted for comment.

Slane said that Kalshi has been in communication with the leagues to address questions and concerns about its product. “We, like them, want a safe, regulated platform that provides integrity reassurances,” she said. In March, the company announced a partnership with IC360, an integrity monitor used by many collegiate and professional leagues, and launched a consumer protection hub featuring deposit caps and self-exclusion options — tools typically associated with problem gambling.

As the industry waits for the CFTC and courts to provide more clarity, some companies are testing the waters. ProphetX, Crypto.com and Robinhood, through a partnership with Kalshi, are also offering versions of sports prediction markets. Sporttrade, a company that operates a sports betting exchange in five states where it is regulated like a sportsbook, asked the CFTC in April for permission to expand nationwide.

DraftKings and FanDuel, the two leading sportsbooks, have considered launching their own prediction markets. In a recent earnings call, Peter Jackson, the CEO of Flutter, FanDuel’s parent company, said that the company is “interested in the potential opportunity.” Gouker believes sportsbooks are proceeding with caution to avoid upsetting regulators in states where they offer traditional sports betting, especially the ones that have opposed Kalshi.

“Now, could they say they want to do it outside of those states? Absolutely,” he said. “But gambling licenses are not things to mess around with. I would not go into prediction markets on a federally regulated market without having some kind of certainty about the outcome.”

FanDuel and DraftKings referred ESPN to remarks from their CEOs during earnings calls when contacted for comment, as did ESPN BET. (PENN Entertainment operates sportsbook ESPN BET as part of a partnership with ESPN.) Gambling regulators from Nevada, Arizona, Maryland and New Jersey, all of whom sent Kalshi cease-and-desist letters, declined to comment. The Illinois Gaming Board told ESPN it “considers the so-called sports events contracts offered by U.S. Commodity Futures Trading Commission (CFTC) registrants to constitute unlicensed and illegal sports wagering activity.”

While the legal questions are examined, professional sports bettors, who are always on the hunt for the most advantageous odds, have already gravitated toward prediction markets.

“It’s another option, another place to bet, which I like,” Rufus Peabody, a professional bettor who plays on Kalshi, told ESPN. “I think they’re absolutely a net positive, for me, for sure, because they serve an underserved part of the market: the sharps, the semi-sharps, the people who are price-sensitive.”

Gambling industry sources say prediction markets have not cut into the betting action at sportsbooks in states such as New York, where both platforms are available. But seven years into the expansion of legal betting in the U.S., everyone is watching to see what happens next.

“How this shakes out fundamentally impacts where the line is drawn between financial speculation and regulated betting,” ElHachem said. “And I think it reshapes the entire sports wagering ecosystem.”

ESPN researcher John Mastroberardino contributed to this story.