The prediction markets operator Kalshi is asking a U.S. District Court to slap the Ohio Casino Control Commission (OCCC) with a permanent injunction and declaratory relief. In the case, filed Tuesday, Kalshi also issued a memorandum seeking an emergency temporary restraining order and a preliminary injunction.
Key Takeaways
- Prediction markets are not licensed by the states and don’t pay state taxes
- Some states, including Ohio, are trying to prevent predictions markets from offering sporting event contracts
- Kalshi has initiated several lawsuits against state regulators
State regulators try to keep illegal and unlicensed gambling operators from preying on their residents. In the past, that’s meant threatening offshore operators with legal action. Prediction markets are not illegal, however, states are battling what they see as a domestic threat.
Federally-regulated prediction markets are now offering sporting event contracts – including parlays. They do no pay state taxes and do not necessarily abide by state sports betting rules or regulations. As a result, many states see that activity as a violation of state gambling laws and/or a threat to licensed sportsbooks.
A few states initiated legal action against prediction markets – and specifically Kalshi – mostly in the form of cease-and-desist orders. Ohio, however, knew that the legal battle wouldn’t end there. But it also knew that it was a step it needed to take to protect licensed Ohio sports betting.
The lawsuit
In the current case, Kalshi argues that the OCCC’s actions “threaten immediate and irreparable harm, not just to Kalshi but to its customers and commercial counterparties.”
The lawsuit further states: “Shutting down its event contracts in Ohio would threaten Kalshi’s viability and require devising complex technological solutions whose feasibility is entirely untested and unclear. Defendants’ acts also impair Kalshi’s existing contracts with consumers and business partners, subject Kalshi’s users to uncertainty and loss, undermine confidence in the integrity of Kalshi’s platform, threaten its prospective business relationships, and jeopardize Kalshi’s as a CFTC-approved exchange.”
The background
In March, the OCCC sent cease-and-desist orders to Kalshi, Robinhood, and Cypto.com. Even then, the OCCC expected a lawsuit from Kalshi.
By that point, Kalshi had sued both Nevada and New Jersey over their cease-and-desist orders.
Meanwhile, Ohio issued a warning in August to its licensed sportsbooks, some of which expressed an interest in launching their own prediction markets. Ohio warned that if a licensee offered sporting event futures contracts in – or outside – the state, they risked losing their Ohio license. The warning was likely in response to FanDuel’s partnership with the CME Group.
Battling in the regulatory gray zone
Prediction markets are currently regulated by the Commodity Futures and Trading Commission (CFTC). Since prediction markets are federally regulated, they argue that they are not bound by state laws. While that may be true, Kalshi’s regulatory status is not entirely black-and-white.
Kalshi and other prediction market operators are recognized by the CFTC, but their sporting event contracts are not. Or not yet. Prediction markets are offering sporting event contracts under a provision that lets them “self-certify” a product until the CFTC has time for a formal review.
Recently the CFTC issued an advisory to prediction markets offering sports event contracts. Although the CFTC regulates prediction markets, it made it clear the agency “has not, to date, been requested to take or taken any official action to approve the listing for trading of sports-related event contracts.”
The CFTC further stated that any prediction market offering sports event contracts should have plans in place to deal with the risks associated with state “regulatory actions and pending and potential litigation, including enforcement actions.” In other words, the CFTC warned Kalshi and its peers that they should have plans in place address state regulatory actions.
If taken at face value, Kalshi’s Ohio lawsuit claims complying with the CFTC’s advisory may be too “complex.”
