Kalshi Loses Anti-Gambling Lawsuit In Utah

Concerns about prediction markets continue to play out in court. The latest saw a federal judge rule on Tuesday that Utah’s anti-gambling laws do apply to Kalshi’s sports betting contracts.

Utah is one of only two states in the country, along with Hawaii, with no legal forms of gambling or a lottery whatsoever. Despite that, Kalshi attempted to offer sports event contracts in the state. The company’s move into sports predictions have drawn considerable criticism from state gaming regulators as well as some federal lawmakers.

The judge in the Utah case granted a summary judgement after Kalshi filed a lawsuit against the state in February, contending that the platform could legally operate in the state as a federally-regulated financial exchange.

However, U.S. District Judge Robert J. Shelby ruled that federal commodities law don’t override Utah gambling regulations within its borders – an argument made by other states over the last year. Utah officials claimed the company engaged in illegal gambling.

“You can’t rebrand illegal gambling as a federal commodity, and today a federal judge agreed with us,” Utah Attorney General Derek Brown said.

“Kalshi bet that clever branding would beat Utah law. Kalshi lost and Utah won. Utah’s constitution bans gambling to protect Utah families, and my office will enforce that ban. Gambling is gambling no matter what any company calls it.”

Prediction Markets At Odds With Previous Regulatory Landscape

In his ruling, Shelby noted that gambling is traditionally regulated by the states, and Congress has held that view since the early 1800s. The court found it unlikely Congress would have quietly changed that in a law written to address the 2008 financial crisis.

Prediction markets contend that their offerings are different from traditional sports betting. They insist that they are regulated at the federal level solely by the Commodity Futures Trading Commission (CFTC).

Kalshi spokesperson Jacki McGavick said the prediction market firm disagrees with the ruling and plans to appeal. The controversy could eventually wind up before the Supreme Court, as jurisprudence surrounding the question of whether prediction markets should be treated as gambling continues to play out around the country.

“Multiple courts have already recognized that prediction markets fall under exclusive federal jurisdiction, and we will continue to defend that position,” McGavick told the Utah News Dispatch.

Lawsuits Just A Part Of Doing Business, Says Kalshi CEO

The legal back-and-forth between states and prediction markets have made plenty of headlines over the last year. For Kalshi, engaging in legal battles is the cost of being an industry disruptor, according to CEO and cofounder Tarek Mansour.

“I think the more interesting thing that’s at play here is that you have an industry, the prediction market industry, that is disruptive, that is growing fast, consumers are adopting it, and it’s threatening a legacy incumbent industry that is unhappy about that,” Mansour told CNBC.

“That has played out over and over. It’s played out with taxis and Uber. It’s played out with hotels and Airbnb.”

Mansour argued that the sports betting industry has a “large lobby” that is out to protect itself.

“The playbook is very simple. You try to legislate. And then finally, when you realize that consumer demand is not going to go away, you try to compete and innovate,” Mansour said. “That’s the cycle that we’re going through right now.”

Legal Actions Across The U.S.

Kalshi is involved in several lawsuits across the country, including in Nevada, and New Jersey. New York also recently sued the company, claiming the platform enables illegal gambling and allows minors to trade, in violation of state law.

The company has also suffered legal losses in other states. A Massachusetts judge granted a preliminary injunction against the company in January and later appeared to agree that Kalshi’s sports event contracts are just wagers that are better regulated at the state level.

In May, Kentucky residents filed a class-action lawsuit against Kalshi, claiming the company is operating illegally in the state. The Ohio Casino Control Commission levied a $5 million fine against the company in April for offering sports contracts.

Despite the controversy surrounding prediction markets, the CFTC continues to claim the platforms are legal financial markets. It has attempted to assert control over the industry by launching lawsuits on prediction market companies’ behalf in some states.

The commission sued New York in April. It also moved with legal actions against Arizona, Connecticut, and Illinois in the same month. The CFTC also sued New Mexico in June, attempting to stop the state from applying gambling laws against prediction markets.