Regulation

    Iowa Court Refuses to Shield Kalshi From State Gambling Laws — The Eighth Circuit Fight Is Next

    Iowa federal judge blocks Kalshi's bid to stop state gambling enforcement. What Judge Locher's ruling means for the Eighth Circuit fight.

    By PredictionMarkets.usTuesday, September 22, 20269 min read
    Iowa Court Refuses to Shield Kalshi From State Gambling Laws — The Eighth Circuit Fight Is Next

    A federal judge in Iowa has denied Kalshi's bid to block the state from enforcing its gambling laws against the prediction market exchange, handing the company another legal setback and opening a new front in the prediction market preemption wars. Kalshi has now taken the fight to the U.S. Court of Appeals for the Eighth Circuit — the fifth federal circuit to see prediction market litigation, and one with no prior precedent on the question.

    The Iowa ruling, issued on September 8, 2026 by U.S. District Judge Stephen H. Locher of the Southern District of Iowa, is part of a larger wave of state legal challenges to federally regulated prediction markets. Combined with a standstill agreement in Montana and a pending Ninth Circuit rehearing petition, the legal landscape is increasingly pointing toward an eventual Supreme Court resolution.

    What the Iowa Judge Actually Said

    Kalshi filed a pre-enforcement lawsuit against Iowa Attorney General Brenna Bird and the Iowa Racing and Gaming Commission (IRGC) in March 2026. The company sought a preliminary injunction that would prevent Iowa officials from applying state gambling statutes to its sports event contracts while the case proceeded.

    Judge Locher denied that request, finding that Kalshi was unlikely to succeed on its core legal argument: that the Commodity Exchange Act (CEA) preempts Iowa gambling law.

    "If Congress intended to pre-empt state gambling laws when it enacted and amended the Commodity Exchange Act, it should have been clear about that preemption," Locher wrote. "The text of the Commodity Exchange Act does not meet the mark."

    The judge went further, questioning whether Kalshi's sports event contracts even qualify as "swaps" under the CEA — the legal classification Kalshi relies on to claim CFTC exclusive jurisdiction. The CFTC's exclusive jurisdiction, Locher found, extends only to "the regulation of swaps or contracts of sale of a commodity for future delivery" — and the court found that sports-related event contracts likely fall outside that definition.

    Locher also criticized Kalshi for expanding into Iowa without first understanding how state regulators viewed its products. "Kalshi charged ahead with its business without, apparently, making any effort to learn whether the Iowa Attorney General or [the IRGC] viewed the company's sports-related event contracts as illegal gambling," he wrote. "It should have proceeded with greater caution."

    Iowa AG Brenna Bird welcomed the ruling. "This ruling is a victory for the rule of law and for protecting Iowans," Bird said in a statement. "Out-of-state betting platforms cannot simply invent a loophole to ignore state law and turn financial markets into unregulated online casinos."

    How Iowa Got Here

    Kalshi's Iowa saga began in early 2026 after the company's representatives met with AG Bird's staff — a meeting intended as an introduction that quickly turned adversarial. When Kalshi's legal team later sought written assurances that Iowa would not bring an enforcement action, a state official reportedly replied in writing: "We will not give any assurances about potential future enforcement."

    That response prompted Kalshi to file a preemptive federal lawsuit in March, seeking to block state action before it occurred. Iowa had not filed any enforcement action against Kalshi at the time, and as of the ruling it still had not — but the court found that the threat of enforcement was credible enough to create standing.

    The preliminary injunction hearing tested whether Kalshi would likely prevail on the merits. It did not. Locher rejected both Kalshi's field preemption argument and its express preemption argument, concluding that neither applied to sports gambling regulation under the facts before him.

    The underlying case remains pending in the Southern District of Iowa.

    Kalshi Takes the Fight to the Eighth Circuit

    On September 15, 2026 — one week after the Iowa ruling — Kalshi filed a notice of interlocutory appeal, sending the preliminary injunction question to the U.S. Court of Appeals for the Eighth Circuit. The case, KalshiEX, LLC v. Brenna Bird, is now docketed in that circuit.

    The Eighth Circuit covers Iowa, Minnesota, Missouri, Nebraska, Arkansas, North and South Dakota. Its ruling will set binding precedent for that multi-state region — and critically, it will mark the first time the prediction market preemption question reaches a federal circuit with no prior ruling on the issue.

    The significance of this is not lost on legal observers. As gaming attorney Mick Bransfield noted when the appeal was filed: prediction market cases have now hit the Eighth Circuit. Only the Fifth Circuit (covering Texas, Louisiana, and Mississippi), the Eleventh Circuit (covering Florida, Georgia, and Alabama), and the D.C. Circuit remain without docketed prediction market appeals.

    Montana's Standstill: Buying Time in the Ninth Circuit

    While Iowa was heading to the Eighth Circuit, Kalshi reached a different kind of resolution in Montana. On September 17, 2026, Kalshi and Montana officials filed a joint stipulation of dismissal in the U.S. District Court for the District of Montana, voluntarily ending Kalshi's lawsuit against Attorney General Austin Knudsen and state gambling regulators.

    The agreement is not a resolution on the merits. Under its terms:

    • Montana agrees not to commence, pursue, or refer for prosecution any enforcement action against Kalshi's event contracts traded on a CFTC-registered exchange
    • The standstill holds until the Ninth Circuit either denies Kalshi's pending en banc petition or issues an en banc decision
    • If Montana later seeks to take action after that window closes, it must first give Kalshi 30 days' written notice
    • The Lottery Commission defendants are dismissed with prejudice; AG Knudsen and the Gambling Control Division are dismissed without prejudice — meaning those parties could still be named in future litigation

    The standstill is directly tied to Kalshi's September 9, 2026 petition for rehearing and rehearing en banc of the Ninth Circuit's August 28, 2026 panel ruling in KalshiEX LLC v. Assad, which held that Nevada can enforce its gambling laws against Kalshi's sports event contracts.

    In effect, Montana's enforcement posture is now linked to whether the full Ninth Circuit agrees to reconsider the Nevada ruling. If the en banc petition is denied, Montana retains the right to enforce — with 30 days' notice.

    The Circuit Map: A Nation Divided

    The competing federal court rulings have created a growing circuit split on the core question of whether the CEA preempts state gambling laws as applied to sports event contracts.

    Third Circuit (covers NJ, PA, DE, VI): In April 2026, a 2-1 panel ruled in Kalshi's favor in the New Jersey case — holding that the company is likely to succeed on its preemption argument. New Jersey has petitioned the Supreme Court to resolve the split.

    Ninth Circuit (covers CA, NV, WA, MT, OR, AZ and others): In August 2026, a unanimous three-judge panel ruled against Kalshi in the Nevada case, finding no CEA preemption of state gambling laws as applied to sports event contracts. The Ninth Circuit subsequently ruled against Kalshi again on September 16, holding that sports event contracts constitute unauthorized class III gaming under the Indian Gaming Regulatory Act when accessed from tribal lands.

    Eighth Circuit (covers IA, MN, MO, NE, AR, ND, SD): Pending. The Iowa appeal is now docketed; no briefing schedule has been announced.

    Tenth Circuit (covers UT, CO, KS, NM, OK, WY): Denied Kalshi's emergency injunction in the Utah case, which is also on appeal.

    Fourth Circuit (covers MD, VA, WV, NC, SC): The Maryland federal case is pending appeal.

    The state court actions add another layer: New York, Washington state, Connecticut, and Massachusetts all have active proceedings in various courts, with the CFTC arguing federal jurisdiction and states arguing the opposite.

    What Comes Next: SCOTUS on the Horizon?

    With at least two federal circuits having now ruled on the question from opposite directions — the Third saying preemption likely applies, the Ninth saying it likely does not — the legal terrain is increasingly hospitable to Supreme Court review.

    The U.S. Supreme Court's September 28, 2026 long conference includes cert petitions from Robinhood and Crypto.com challenging state-level prediction market enforcement, alongside New Jersey's own petition asking the Court to resolve the circuit split. None of these petitions have yet been granted.

    If the Eighth Circuit rules against Kalshi — adding its voice to the Ninth and Tenth in a three-circuit majority against the industry's preemption theory — the pressure for Supreme Court resolution will intensify further. A three-to-one circuit split on a question affecting a multi-billion-dollar industry with tens of millions of users is precisely the kind of legal conflict SCOTUS certiorari is designed to resolve.

    Kalshi's strategy appears to be threading two parallel tracks: (1) pursuing en banc reconsideration in the Ninth Circuit to try to flip or limit the Nevada ruling before it controls other cases, and (2) building an appellate record in the Eighth Circuit, Tenth Circuit, and Fourth Circuit that might either generate conflicting rulings or demonstrate the issue's national significance.

    Iowa AG Bird's statement, meanwhile, signals that Republican-led states are not uniformly inclined to hold back on enforcement even after court wins. Bird indicated Iowa law now applies to sports prediction operators who have not established compliance — a posture distinct from Montana's AG, who agreed to pause enforcement pending further Ninth Circuit review.

    What This Means for Prediction Market Users

    For traders using Kalshi and other platforms in Eighth Circuit states — Iowa, Minnesota, Missouri, Nebraska, Arkansas, and the Dakotas — the near-term picture is watching.

    Iowa has not taken enforcement action against Kalshi despite winning the injunction fight. Missouri AG Catherine Hanaway, however, issued cease-and-desist letters to six prediction market operators including Kalshi on September 18, 2026, and has stated she will sue if settlements cannot be reached.

    Platforms in these states are currently operating. The Eighth Circuit ruling, when it comes, will determine whether they can continue to do so without state licenses or negotiated agreements.

    The prediction market industry has invested heavily in the federal preemption argument. If the Eighth Circuit rules against Kalshi — aligning with the Ninth — the path forward narrows to a legislative fix, a Supreme Court reversal, or state-by-state negotiated compliance. The third option is the one most operators would prefer least.

    Frequently Asked Questions

    What did the Iowa court actually decide? The court denied Kalshi's motion for a preliminary injunction — meaning it refused to block Iowa from enforcing its gambling laws while the case continues. It did not issue a final ruling on the merits. The underlying lawsuit remains pending.

    Does this mean Kalshi is illegal in Iowa? No final ruling on legality has been issued. Iowa has not taken enforcement action against Kalshi. The denial of a preliminary injunction means Kalshi cannot get a court order stopping potential enforcement while the legal question is resolved.

    Why does the Eighth Circuit matter? It covers seven Midwestern states. A ruling there adds a new circuit to the preemption debate, and combined with existing rulings in the Third, Ninth, and Tenth Circuits, increases pressure on the Supreme Court to take up the issue.

    What is the Montana standstill? Montana and Kalshi agreed to end their lawsuit. Montana agreed not to enforce gambling laws against Kalshi while Kalshi seeks further Ninth Circuit review. If Kalshi loses that review, Montana can enforce with 30 days' notice.

    When will the Supreme Court weigh in? No cert has been granted yet. The Court's September 28, 2026 conference includes petitions from Robinhood, Crypto.com, and New Jersey. A decision to grant or deny cert could come within weeks of that conference.

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