New Jersey Attorney General Matthew Platkin has submitted his opinion to the courts in the state’s case against Kalshi. He claims sporting event contracts are no more than sports betting and must comply with state betting laws.
New Jersey issued a cease-and-desist letter to Kalshi over their sports prediction markets, which it claims are violating state gambling laws. Kalshi responded by suing, and this week, a court hearing is taking place.
Kalshi claims that their markets are not betting, but predictions based on “real-world events with financial consequences”. The company asserts that only the Commodity Futures Trading Commission (CFTC) can regulate its markets through the Commodity Exchange Act (CEA).
The lawsuit filed in New Jersey stated, “The New Jersey Division of Gaming Enforcement (the “Division”) is unconstitutionally threatening to prohibit all trading of Kalshi’s event-based contracts in New Jersey, even though those contracts have been authorized by the Commodity Futures Trading Commission (“CFTC”), the federal agency that Congress endowed with “exclusive jurisdiction” to regulate trading on federally-designated exchanges like Kalshi.”
Platkin’s statement to the court makes his opinion clear: “Kalshi is wrong.”
He goes on to add, “There is no doubt that if the Commodity Exchange Act (CEA) applies to Kalshi’s sports wagers, Kalshi must comply with the CEA in order to list them on a CFTC-designated market. But it cannot do so in violation of state law.”
Event contracts or sports betting?
Kalshi scored a victory in a similar case in Nevada when a judge ruled that their markets are legal. This granted a temporary restraining order, but the courts will reconvene on the matter.
The cases in New Jersey and Nevada could be pivotal for the future of event contracts. In the meantime, Kalshi has expanded its sports prediction markets and now includes NBA, MLB, and NHL match winner markets.
Another favorable ruling in New Jersey would further embolden the company to push the boundaries of what constitutes sports betting.
The high trading volume on sports markets makes dealing with any legal pushback worthwhile. March Madness markets, for example, saw over $400 million of trading.
Predicting prediction markets’ future
Some argue that New Jersey’s case is stronger than the one made in Nevada. Legal betting experts also suggest that states invoke the Federal Wire Act to show sports event contracts are illegal.
The CFTC will meet later this month to discuss the future of sports event contracts and with all the pressure from states, it seems only a matter of time before some new legislation restricts operators such as Kalshi.
Kalshi CEO Tarek Mansour has publicly stated that he is not concerned by all the legal challenges. The next few weeks should tell us much more about the future of prediction markets in sports.
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