Things are heating up in the battle between state regulatory agencies and prediction market operators.
The latest shot across the bow came Monday, when prediction market provider KalshiEX LLC (Kalshi) filed a motion in the United States District Court for the District of Maryland Northern Division against the Maryland Lottery and Gaming Control Commission (MLGCC).
Key Insights
- Kalshi filed similar motions against New Jersey and Nevada.
- A key issue is whether sports event contracts offered by prediction markets are state regulated sports wagers or federally regulated futures contracts.
Kalshi’s latest suit is in response to Maryland’s recent cease-and-desist order issued earlier this month. Maryland issued cease-and-desist orders to three prediction market operators, but Kalshi is the only one to respond with a lawsuit.
In its cease-and-desist order, Maryland Lottery and Gaming Control agency director John Martin wrote “Kalshi is operating in Maryland and is offering and conducting what is, in fact, wagering on sporting events. However, Kalshi does not hold a sports wagering license issued by the Commission, its wagers have not been approved by the Commission, and it is not otherwise authorized under Maryland law to offer wagers on sporting events.”
Kalshi argues in its suit that the MLGCC is “unconstitutionally threatening to prohibit trading of Plaintiff KalshiEX LLC’s (Kalshi) sports-event contracts in Maryland, even though those contracts are 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.”
Potential showdown could challenge 1961 federal sports betting law
Two issues that could complicate Kalshi’s argument are the 1961 Federal Wire Act and the CFTC’s own rules. The Federal Wire Act prohibits interstate sports betting, which is one reason why sports betting is legalized and regulated intrastate. Meanwhile, CFTC Rule 40.11(a)(1) prohibits any event contract “that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law ....”
At least six states have sent cease-and desist orders to Kalshi. So far, Kalshi has countered with lawsuits against New Jersey, Nevada and Maryland. Although Ohio regulators anticipate they could be next. Kalshi won the initial round in its Nevada suit, gaining a temporary relief from the state’s cease-and-desist order.
New Jersey, however, may give Kalshi more trouble. The Garden State has already filed an opposition to Kalshi’s motion. New Jersey Attorney General Matthew Platkin offered an option to the court.
“Like many other States, New Jersey has regulated gambling for over 125 years. Plaintiff KalshiEX, LLC thinks it is exempt from those laws simply because it offers sports wagers in a new format (called event contracts) on a market designated by the Commodity Futures Trading Commission (CFTC). Kalshi is wrong,” he wrote. “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.”
Kalshi, however, has some powerful friends in the new presidential administration. In January, Kalshi named Donald Trump Jr. as a “strategic advisor.” In February, President Trump nominated Brian Quintenz to lead the CFTC. Quintenz was a former Kalshi board member.
