States have won another key legal battle against prediction markets, with a Utah federal judge ruling against Kalshi and allowing the Beehive State to apply its gambling laws to the operator.
The Utah District Court Judge Robert Shelby rejected Kalshi’s preemption argument, the idea that prediction market contracts are tradeable financial instruments, not a form of gambling.
Kalshi had argued that it is only answerable to the Commodity Futures Trading Commission, and that it does not need to abide by state gambling laws, because it does not provide gambling services.
Shelby disagreed, saying that Kalshi had not proven it could not be compliant with both state and federal laws.
“Enforcement of State gambling laws is not inconsistent with the CFTC’s regulation and oversight of derivatives markets,” he wrote.
Shelby added that Kalshi had “not met its burden of showing otherwise.”
The ruling comes as a further blow for Kalshi, rival platforms, and the CFTC, as the bitter legal struggle for control of prediction markets continues.
Late last month, New York’s Governor and Attorney General launched a lawsuit against the firm. The AG wants Kalshi to pay the state a whopping $36 billion in damages.
Utah: Kalshi Will Appeal Ruling
In his ruling, Shelby granted Utah summary judgment. In US courts, judges can order summary judgment only in cases where the material facts are so overwhelmingly indisputable that they do not require further legal procedures.
Shelby also ordered the court to close the case.
However, Kalshi has already announced its intention to appeal the verdict. A spokesperson told the media outlet Utah News Dispatch that the firm “disagrees with the judge’s decision” and will seek to overturn it.
“Multiple courts have already recognized that prediction markets fall under exclusive federal jurisdiction, and we will continue to defend that position,” the spokesperson added.
But Utah officials have celebrated the ruling.
“Prediction markets are gambling, full stop,” Utah Governor Spencer Cox wrote on X.
“Today’s ruling affirms that Utah’s anti-gambling laws are an appropriate way to protect our citizens and are not preempted by federal law,” Cox added.
The Utah Attorney General, Derek Brown, also feted Shelby’s ruling.
“You can’t rebrand illegal gambling as a federal commodity. And today a federal judge agreed with us. Kalshi bet that clever branding would beat Utah law. Kalshi lost, and Utah won,” said Brown, per an official State of Utah release. “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.”
Key Legal Question Still Unanswered
Brown’s office bemoaned the fact that Kalshi “offers contracts on who wins a game, by what margin, which team will have the longest losing streak, which player scores a touchdown, and even who sings at the Super Bowl.”
In Utah, the office noted, “offering online gambling to anyone in the state is a third-degree felony.”
It claimed that the court ruling proved that Kalshi’s CFTC-issued operating permits do not put its “bets out of Utah’s reach.”
While Utah officials continue their victory lap, the Utah District Court’s ruling did not address the key question underpinning the CFTC’s lawsuits against states.
The regulator says the Commodity Exchange Act covers prediction markets, claiming that their contracts are federally regulated swaps.
Gambling, according to the CFTC’s Chairman Michael Selig, is done exclusively in casinos.
Shelby did not make mention of this thorny issue.
Prediction market trading volumes continue to rise, with sports-related contracts attracting the most money.
While some pro sports leagues have sealed exclusive partnership and streaming deals with Kalshi and its rival Polymarket, others are less keen.
Last month, the NBA and the NFL wrote to the CFTC to complain that recent rule-making did not reflect their concerns about the platforms.
However, the top men’s pro tennis body, the ATP, recently sealed a partnership deal with Polymarket.
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