Judge Vernon D. Oliver has likened parlays to casino gaming while rejecting Kalshi’s arguments that its sports markets should not be considered sports gambling in Connecticut.
Judge Oliver denied Kalshi’s motion for a preliminary injunction, ruling that sports-event contracts are not “swaps” under the Commodity Exchange Act (CEA). He added that even if they were properly characterized as swaps, the state’s gambling laws are not preempted by the CEA.
Kalshi has appealed to the Second Circuit, requesting that the court overturn Judge Oliver’s ruling and issue an injunction preventing Connecticut from taking enforcement action. Kalshi first sued Connecticut regulators in December last year after the state issued the company a cease-and-desist letter.
Casino Gaming No Different Than Parlays, Says Judge
In its defense, Kalshi argued that its sports markets have meaningful economic consequences, unlike casino gaming.
Judge Oliver, however, failed to see the difference between a contract on whether a player wins a hand in blackjack or a contract where a player places a parlay on the Broncos and Giants.
“Kalshi has represented that it would not list a contract on whether or not a player at a blackjack table wins their hand because ‘it would be very difficult to argue that that’s not gaming’ and because that is an example of a ‘transaction that has implications for the people in the transaction, but no extrinsic implications for people outside of the transaction.’ But Kalshi has offered ‘no principled reason’ for why a ‘combo’ on both the Giants and Broncos winning, which is a type of contract Kalshi does offer, is meaningfully different,” stated Judge Oliver in his ruling.
“Whether both the Giants and Broncos happen to win on a given weekend may have no independent financial, economic, or commercial consequence at all, apart from its significance to participants in Kalshi’s market and others who have wagered on that particular combination of outcomes,” Oliver added.
Casino Gaming Arguably Has More Economic Consequences
He went on to state that casino gaming could arguably be a more valid prediction market with economic consequences beyond the transaction.
For example, “a blackjack hand could have significant financial consequences for the casino, the player, or others with contractual or commercial interests tied to the game.”
Ultimately, if Kalshi argues that sports contracts, including parlays, have real-world economic consequences, then “virtually any uncertain event with economic ramifications” would qualify as a swap, stated Oliver.
This, however, is not what Congress intended, as confirmed by Chris Dodd, one of the authors of the Dodd-Frank Act, which amended the CEA in 2010.
Kalshi Made Same Argument Against Sports Markets
Gaming lawyer Daniel Wallach pointed out that Kalshi used the same argument about markets having no economic consequences when discussing sports contracts.
When defending its right to offer election markets in 2024, a Kalshi lawyer said a contract on a sporting event would be a classic example of “gaming,” which the CEA prohibits. The lawyer added, “Congress did not want sports betting to be conducted on derivatives markets.”
Kalshi and the CFTC have now changed their stance on the acceptability of sports markets as valid financial instruments with economic consequences.
Parlays Now Lead Kalshi Volume
While Kalshi may be able to argue that a single sports-event contract has economic consequences, as Judge Oliver highlighted, a combo across multiple teams would only seem to have real consequences for individuals trading on that particular parlay.
The example he gave involved only two teams, but Kalshi users are building parlays with far more legs. The vertical now leads the platform’s volume. Over the last seven days, Kalshi users traded $3.2 billion on parlays, more than the $3.07 billion in individual sports markets.
Parlays and sports accounted for 77% of the platform’s total volume last week. When the NFL season kicks off next month, that figure will undoubtedly rise.
Rulings Pile Up Against Kalshi
Connecticut’s denial of Kalshi’s motion for an injunction and its ruling that its markets are not exempt from state gambling laws mean nine states could now block the operator.
Utah became the eighth state last week as a U.S. district court judge said that the state could enforce its gambling laws to prohibit the platform.
Nevada and Michigan have already restricted the company’s operations. Additionally, judgments in New York, Maryland, Massachusetts, Ohio, and Washington have all gone against Kalshi.
The company has received favorable rulings in New Jersey and Tennessee, while a judge in Minnesota also blocked the state from implementing a law banning prediction markets. The ruling, however, left open the possibility for the state to pursue action against Kalshi’s sports contracts.
Kalshi has appealed all the negative rulings, and it is likely the case will soon reach the Supreme Court to decide whether its markets are permitted under federal law.
The post Connecticut Judge Likens Parlays to Casino Gaming as He Rules Against Kalshi appeared first on CasinoBeats.
