Four decades separate Kalshi’s newest legal argument from the event it leans on, and the company is betting that gap won’t matter to three appellate judges. On October 1, Kalshi’s lawyers filed a brief with the Second Circuit that rests almost entirely on a 1981 ruling about spud futures — the kalshi potato war case — to claim federal law already settled the fight Connecticut is now picking with the company. This filing marks one more round in a legal battle Kalshi has mostly been losing, and it shows just how deep into commodities-law history the company will dig to keep its sports contracts trading nationwide.
What Connecticut’s Lawsuit Actually Claims
Connecticut built its lawsuit around a single claim: Kalshi’s sports event contracts amount to unlicensed sports betting wearing a different label. Users place a yes/no bet on a game’s outcome through these contracts — functionally a binary option — and Kalshi lists them on its CFTC-registered exchange right alongside contracts tied to elections, economic data, and weather. Connecticut draws a sharper line than Kalshi does: the state argues that what a product actually does matters more than which rulebook it sits under, so a contract that pays out on a sports score and gets marketed to retail users counts as gambling no matter what exchange lists it.
On August 10, 2026, a federal judge rejected Kalshi’s bid to block Connecticut’s enforcement, shooting down the company’s preemption theory in the process. Winning a preliminary injunction required Kalshi to prove it would likely succeed on the merits of its federal-preemption claim, and the district court decided the company hadn’t cleared that bar — the same standard that has stopped Kalshi cold in several other states this year.
Kalshi took the fight to the Second Circuit, and its core position hasn’t shifted an inch: the company insists its contracts qualify as federally regulated swaps, and that the Commodity Exchange Act (CEA) hands the Commodity Futures Trading Commission exclusive authority over them. Under that reading, states don’t get a vote — not because Connecticut lacks the power to regulate gambling broadly, but because Kalshi’s specific products supposedly never qualified as gambling under federal law to begin with.
The 1981 Potato Case Kalshi Is Leaning On
Kalshi built its argument around Leist v. Simplot, a 1981 decision that traces back to the Maine Potato War of 1976. A group of potato processors — J.R. Simplot’s company among them — had piled into a massive short position in potato futures on the New York Mercantile Exchange, and when that trade blew up, it dragged the contract settlement process down with it. Thousands of contracts sat unsettled, exchange officials spent years scrambling to unwind the mess, and the fallout spawned litigation that outlasted the original default by years.
Traders who got burned in the collapse sued, and their case eventually landed in front of the Second Circuit. The court’s answer: the CEA’s “exclusive jurisdiction” language preempts state-law claims touching the same conduct, even when that conduct — a blown trade — looked a lot like the ordinary contract or fraud disputes state courts handle every day. Kalshi’s brief tells the Second Circuit to apply that exact logic now and argues the Connecticut district court simply skipped it: if federal commodities law alone could resolve a 1976 potato default, the company reasons, a 2026 sports contract trading on a CFTC-registered exchange deserves no less.
The original opinion sits in the public record, and reading it directly is worth the time: the court’s reasoning on why federal commodities law preempted the state claims in that case is the exact passage Kalshi now wants stretched to cover sports contracts in 2026.
Why Judges Haven’t Been Buying It
This isn’t the first time Kalshi has reached for preemption. The company has deployed some version of this argument in nearly every state fight it’s picked this year, and judges keep turning it down. Litigation tracking from legal site mickbransfield.com shows courts in Nevada, Ohio, Connecticut, New York, Maryland, and Michigan all denying Kalshi’s preliminary injunction requests. One pattern runs through nearly all of those rulings: judges accept that Kalshi’s exchange itself answers to federal regulators, but they stop short of accepting that federal registration shields every single product on that exchange from state gambling law.
Kalshi can point to two real wins so far — a Third Circuit ruling out of New Jersey and a Tennessee court order, both finding the company’s contracts federally preempted. That circuit split — the Sixth and Ninth rejecting Kalshi’s reasoning while the Third accepted it — explains why this fight will likely end at the Supreme Court instead of fizzling out state by state. Courts tend to step in exactly when circuits disagree on a federal preemption question like this one, and that unresolved tension gives both sides a reason to keep fighting rather than settle.
We dug into a related thread in our look at how Kalshi’s deleted ambassador program became evidence in the same Connecticut case. That’s a separate legal theory from the potato-war argument, but both are playing out inside the same lawsuit, tangled up with factual disputes over how Kalshi marketed these contracts to everyday users.
What’s Actually at Stake If Kalshi Loses Again
Losing at the Second Circuit wouldn’t pull Kalshi off the national map. It would add one more state to a growing list where regulators treat the company’s sports contracts as gambling products subject to local licensing, taxes, and restrictions — mirroring what already happened when the Tenth Circuit refused to pause Utah’s gambling law enforcement against Kalshi. Every state-level loss also raises the real cost of sticking around in that market: Kalshi ends up building geofencing, running age and residency checks, or simply pulling sports contracts for that state’s users while the rest of the platform keeps running elsewhere.
Each additional loss shrinks Kalshi’s negotiating room, too. Once enough circuits decide sports contracts aren’t swaps, the CFTC’s pending rulemaking on defining event contracts loses much of its weight, because courts — not regulators — will have already drawn the line state by state. That sequencing matters: a patchwork of court rulings is far harder to undo than a single rulemaking, so Kalshi could still win a favorable CFTC definition and find itself stuck complying with hostile circuit precedent across half the country.
Where the Potato Case Goes From Here
No oral argument date exists yet at the Second Circuit — both sides are still exchanging written briefs, and Connecticut still gets a chance to respond before any panel takes up the case. Expect Connecticut to argue that a 1981 ruling about potato futures traders suing each other over a defaulted contract says very little about a state’s power to police sports betting under its own gambling statute — a state police-power question Leist never had to answer, since that case involved private traders, not a state attorney general.
That gap is the real test facing Kalshi’s strategy. Reaching for forty-year-old precedent is a legitimate legal move, but judges in Nevada, Ohio, and New York have already heard similar federal-preemption arguments and waved them off. Unless the Second Circuit panel reads Leist v. Simplot far more broadly than those other courts read the CEA, the potato case risks becoming a footnote instead of the turning point Kalshi needs.
For now, the Connecticut case sits exactly where most of Kalshi’s state litigation sits: contracts keep trading, enforcement keeps getting litigated, and the real resolution probably waits for the Supreme Court rather than any single circuit court.
