A federal judge in Nevada recently overturned a key victory for prediction market operator Kalshi, lifting a previous injunction that prevented state regulators from treating its sports event contracts as illegal gambling. This ruling deepens the division among courts across the United States regarding the legal characterization of prediction markets, potentially requiring the Supreme Court to intervene.
Judicial Decision and Legal Dispute
U.S. District Judge Andrew Gordon on Tuesday rejected Kalshi's argument that its registration with the U.S. Commodity Futures Trading Commission (CFTC) exempts it from state regulation. Gordon believed that Kalshi's "strained interpretation" of the Commodity Exchange Act would overturn decades of federal principles in the gambling law domain, bringing national sports gambling under CFTC jurisdiction. A spokesperson for Kalshi immediately objected, stating that their platform is "distinctly different" from state-regulated sports gambling and plans to appeal to the Ninth Circuit Court of Appeals.
Divergence in State Regulatory Attitudes
This decision highlights the increasing divergence among state courts in classifying prediction markets. In April, Judge Gordon had approved a preliminary injunction for Kalshi, followed by a similar injunction issued by a New Jersey judge, while a Maryland judge dismissed Kalshi's application. Frankly, this situation of each state acting independently indeed makes it difficult for businesses. Meanwhile, a California judge this month ruled that prediction markets do not constitute gambling, giving Kalshi the green light to operate in the state—PASA's official website has a detailed special analysis report on the latest developments in prediction market regulation.
Industry Impact and Future Directions
Kalshi is currently facing multiple lawsuits in New York, Massachusetts, and Ohio, with a hearing scheduled in Massachusetts on December 9. State regulatory bodies have warned sports gambling operators that launching prediction market products could jeopardize their licenses. However, operators including DraftKings and FanDuel are still preparing to launch such products, indicating that this legal struggle is likely to continue for some time.
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