The controversy over prediction markets in New Jersey has continued. Monday April 28 saw New Jersey judge Edward Kiel award Kalshi a preliminary injunction that will allow them to continue to operate in the US state.
The court hearing followed the sending of a cease-and-desist letter to Kalshi. That had been sent out by the New Jersey Division of Gaming Enforcement (DGE). Why did this happen? The DGE believes that Kalshi was “listing unauthorized” sports betting markets in the state.
Kalshi has disagreed with the views of the DGE, saying that they are federally regulated under the Community Futures Trading Commission (CTFC). That they say allows them to include sports contracts as a market. With that being so, Kalshi claims the CTFC supersedes the laws of New Jersey.
It seems the judge is also of the view that is the case and why he awarded a preliminary injunction in their favor. His ruling stated that not granting the injunction would leave Kalshi “subject to state enforcement or obligating it to shift its business practices.”
This is not the end of the legal battle but the judge stated that he has been “persuaded” that Kalshi’s sports-related event contracts are “within the CFTC’s exclusive jurisdiction.” and added that he was “unconvinced” by New Jersey’s arguments that had been made.
New Jersey is not the only US state to be concerned about the prediction markets. Nevada has also gone down the same route but a preliminary injunction was also granted to Kalshi there.
When taking the court action, Kalshi explained just what a prediction market involves. It gave as an example whether or not there would be an earthquake in Los Angeles before the end of this year.
There would be a ‘yes’ or ‘no’ option and they can be traded on or even withdrawn before the expiry date. This is similar to the cash out option seen at online sportsbooks in New Jersey. With that, players can end a bet before its natural conclusion but not for the full amount that would have initially been offered.
This takes place on an exchange as is seen in the UK with sites such as Betfair. Kalshi says that the trading of contracts does not constitute a “bet” against the “house.”
It was during this year’s Super Bowl that Kalshi first began to offer sports markets. With that being successful, they continued doing so during March Madness where huge amounts are wagered on college basketball matches. They also offered NBA and MLB contracts.
When they started offering sports-related markets rather than earthquakes, that’s when the problems began. According to the DGE in New Jersey, this was “listing unauthorized sports wagers.” To legally operate in the state, a site must be licensed and regulated.
It’s not just in New Jersey that Kalshi has been having problems. A similar situation has been taking place in Nevada but with the same result. April 8 saw a judge in that US state also allow them to continue operating in the state after attempts were made to stop them doing so.
SImilar action has also been taken in Illinois, Maryland and Ohio where online sports betting has been made legal. In Maryland, there has also been action taken against Crypto.com against the state’s lottery organisers. The Maryland Lottery had stopped the site from offering sports-related event contracts.
Connecticut, Massachusetts and Michigan have also begun investigating the company. As in New Jersey, they are concerned that Kalshi is carrying out unlicensed sports betting.
The Head of Corporate Development for Kalshi is Sara Slane, who has also been an executive with the American Gaming Association. Reacting to the New Jersey ruling, Slane (who joined Kalshi this spring) said the company was “grateful for the court’s attention and well-reasoned position.”
Slane added that the decision is consistent with what we have stated from the beginning: Kalshi is firmly on the right side of the law.”
Just days before the New Jersey judge made his ruling, the CFTC cancelled a forum on the topic of prediction markets and no new date has yet been set.
In recent years, sports betting has been made legal in nearly 40 US states. It is a big business with billions of dollars being wagered, especially online. Huge amounts of gambling tax revenue is being pumped into state coffers.
There is still a problem with unlicensed gambling and this doesn’t just affect legal sites but they are not paying taxes either. There has been a clampdown on illegal betting sites (both retail and online) and the prediction markets are also adding to the problem. It will be interesting indeed to see how future legal action progresses.
