34 States Challenge Kalshi’s Betting Model
Kalshi, a prediction market platform, is under increasing scrutiny as 34 U.S. states, along with the District of Columbia and the Northern Mariana Islands, have joined a legal case against the company. The states filed an amicus brief in New Jersey’s Court of Appeals, arguing that Kalshi is effectively offering unregulated sports betting.
This legal effort aligns with similar briefs submitted by the Indian Gaming Association (IGA) and the American Gaming Association (AGA), both of which represent influential stakeholders in the U.S. gambling landscape. These groups assert that Kalshi’s model circumvents state gambling laws by disguising sports wagers as futures contracts.
Ads Undermine Kalshi’s Defense
Although Kalshi insists that it does not offer sports betting, its own marketing materials have undermined this claim. Court filings cite advertisements where the platform refers to itself as “the first app for legal sports betting in all 50 states.” These promotional messages have been used to highlight the inconsistency between Kalshi’s legal arguments and public branding.
Of particular concern is Kalshi’s promotion of betting in states like California and Texas, which have not legalized sports betting. Interestingly, these two states have not joined the case. However, several others that also prohibit sports betting—such as Utah, Idaho, South Carolina, Alabama, and Hawaii—have added their support.
Federal Oversight Sparks Industry Backlash
Kalshi argues that it falls under the regulatory authority of the Commodity Futures Trading Commission (CFTC). However, the AGA and state authorities argue that the CFTC lacks the expertise and infrastructure to properly regulate sports betting, a domain typically overseen by state gaming boards.
The AGA notes that sports betting markets require dedicated oversight, which the CFTC has not historically provided. Critics believe this regulatory loophole has allowed Kalshi and similar platforms to expand into sports betting without proper state licensing or controls.
Legal Showdown in New Jersey
The ongoing case, Kalshi v. Flaherty, stems from a cease-and-desist letter issued by the New Jersey Division of Gaming Enforcement (NJDGE) in March. Kalshi responded by suing the state, resulting in a judge granting a preliminary injunction that permits the company to continue operations in New Jersey for now.
The NJDGE has since appealed the ruling. If the appeals court upholds the injunction, it could set a precedent for federally regulated event contracts to bypass state gambling restrictions. A reversal, however, may force Kalshi to either adjust its offerings to comply with state law or seek formal state gambling licenses.
Kalshi Defends the Role of Prediction Markets
Despite the legal pressure, Kalshi CEO Tarek Mansour remains steadfast. In a public statement, Mansour described prediction markets as “truth machines,” claiming they foster unbiased insights through the mechanisms of financial markets. He argued that, amid waning public trust in traditional institutions, prediction markets have become essential tools for transparency.
Nevertheless, the widespread opposition from state authorities, tribal organizations, and gaming associations signals significant hurdles ahead for Kalshi. A ruling may take up to a year, during which the company is expected to continue pushing its interpretation of legal betting boundaries.
