The prediction market platform Kalshi has officially sued the Ohio Casino Control Commission (OCCC) and the State Attorney General's Office, challenging the state's cease and desist order against it. This lawsuit is the latest development in a series of legal disputes across the United States regarding whether prediction markets constitute illegal sports betting. Kalshi argues that it is federally regulated by the U.S. Commodity Futures Trading Commission (CFTC) and should take precedence over state gambling laws, and is requesting the court to issue an injunction to prevent Ohio from enforcing its gambling regulations. This case occurs against the backdrop of several states enhancing the regulation of prediction markets, with operators like FanDuel and Underdog planning to launch similar products, prompting consecutive warnings from state regulatory bodies.
Lawsuit Background and Plaintiff's Claims
The prediction market platform Kalshi has filed a lawsuit in the Southern District Court of Ohio, with the defendants being the Ohio Casino Control Commission (OCCC) and the State Attorney General's Office. The lawsuit stems from a cease and desist order issued by the OCCC to Kalshi in the spring, followed by a warning in August that sports betting operators should not offer event contract products.
In the lawsuit, Kalshi requests the court to issue preliminary and permanent injunctions to prevent Ohio from enforcing state gambling regulations against its platform, asserting that its business is protected by federal regulation.
Core Legal Dispute
The core dispute in this case is whether the event contracts offered by the prediction market platform constitute illegal sports betting, and whether federal regulation takes precedence over state gambling laws. Kalshi claims it is regulated by the Commodity Futures Trading Commission (CFTC) and has national operating authority.
The lawsuit states: "Ohio's attempt to regulate Kalshi infringes on the federal regulatory framework established by Congress for regulating designated exchange derivatives. State regulatory efforts are both preemptive and conflict preemptive."
Regulatory Stance and Warnings in Multiple States
In addition to Ohio, several state regulatory bodies have recently strengthened their regulatory stance on prediction markets. Gambling regulators in states like Michigan and Arizona have issued warnings to sports betting companies, demanding that prediction markets not be included in their product portfolios.
These warnings coincide with major sports betting operators such as FanDuel and Underdog announcing plans to launch event contract products, heightening regulatory concerns about market standards.
Industry Discussion and Focus at the G2E Conference
Prediction markets became a major topic of discussion at the Global Gaming Expo (G2E) in Las Vegas. A panel discussion titled "Unpredictable: The Emergence of Event Contracts and How They Challenge the Regulated Gaming Paradigm" was held during the conference, exploring how regulators are dealing with illegal and offshore operators.
Kevin King, a partner at Covington & Burling LLP, stated during the discussion that these lawsuits involve three key issues: preemption, procedure, and patience, with the core being whether federal law takes precedence over state and tribal regulation of sports event contracts.
Status and Progress of Lawsuits in Various States
Currently, there are more than a dozen similar lawsuits underway across the United States, testing whether sports event contracts constitute illegal sports betting. Kalshi has obtained preliminary injunctions in New Jersey and Nevada, preventing state regulatory enforcement, but a Maryland judge has rejected its request for an injunction.
Although Kalshi obtained a preliminary injunction in Nevada, a judge there recently rejected a similar injunction request from Crypto.com, showing that court positions are not consistent.
Federal Involvement and Legislative Actions
The Executive Director of the Pennsylvania Gaming Control Board, Kevin O'Toole, wrote to two U.S. Senators and 17 Representatives from the state, expressing concerns about prediction market platforms conducting sports betting, stating that they "create a backdoor for legalizing sports betting."
A group of U.S. Senators led by Catherine Cortez Masto of Nevada and John Curtis of Utah has written to the CFTC, opposing the supersession of state laws, emphasizing the need to maintain state regulatory authority.
CFTC Regulatory Stance and Changes
During the Biden administration, CFTC commissioners had pushed for a rule banning sports event contracts, but a federal court overturned the CFTC's order to stop Kalshi's election contracts in October. The platform handled over $700 million in contracts during the 2024 presidential election period.
Since President Trump took office, four CFTC commissioners have resigned, with Acting Chair Caroline Pham becoming the only current commissioner. Trump initially nominated Brian Quintenz as chairman, but withdrew the nomination this month.
Industry Impact and Future Outlook
Dustin Gouker, owner of Closing Line Consulting, stated at the G2E conference that sports event contracts on prediction market platforms might eventually be recognized as legal sports betting, but this will need to be resolved through the court system over the next two to three years.
Gouker noted: "This is what we really need to find out in court over the next two to three years." He emphasized that resolving legal disputes requires time and judicial procedures.
Regulatory Concerns and Stance
State regulatory bodies continue to express concerns about prediction markets. Jackie Johnson, Director of the Arizona Gaming Department, stated during a G2E panel discussion: "Prediction markets are ignoring state policy. There are countless different protections and our state laws."
Johnson emphasized: "We are considering consumer protection, protecting the integrity of our current market, you can't just stand by and allow it." This reflects the regulatory bodies' commitment to maintaining market order and upholding existing regulatory frameworks.
