The state of New Jersey has filed a new opposition to prediction market startup Kalshi’s preliminary injunction, accusing the company of making an “endrun” around its regulatory framework.
Key Takeaways
- In March, the state issued Kalshi with cease-and-desist orders, arguing that it could not offer sports wagering in any form.
- Kalshi CEO Tarek Mansour claims that “state law doesn’t really apply” to the company, as it’s “regulated at the federal level.”
The battle between New Jersey and prediction market startup Kalshi rages on today, with the state filing a brief in opposition to the company’s recent motion for a preliminary injunction. In it, the state accuses Kalshi of making an “endrun” around its existing regulatory scheme “just by offering sports wagers in a different format.”
Kalshi’s prior legal action was initiated in response to cease-and-desist orders issued by both the Nevada Gaming Control Board and the New Jersey Department of Gaming Enforcement. The initial orders, filed in March, applied to any form of sports wagering offered by Kalshi, demanding that Kalshi also “void any such wagers already placed.”
In response, the company immediately sought a new court order that would allow it to remain in operation in both New Jersey sports betting and Nevada. In the resultant lawsuit, Kalshi asserted that state regulators could not control its operations, as the platform is federally regulated.
Kalshi CEO claims that state law ‘doesn’t apply’ to platform
Speaking at a StrictlyVC event in San Francisco, Kalshi CEO Tarek Mansour said the company is "not necessarily very concerned [because] we are regulated at the federal level. The state law doesn’t really apply.”
The company’s argument is that the two state’s orders represent an intrusion into the federal government’s exclusive authority over future derivatives trading.
But the states in question seek to put a firm stop to Kalshi’s offering, to avoid the potential loss of tax dollars that could result from players choosing Kalshi over their own, fully regulated sports betting companies.
New Jersey’s most recent opposition to the injunction argues that the court “should reject Kalshi’s invitation for any company to evade state sports-wagering laws by structuring their wagers as event contracts and self-certifying them with the CFTC.”
It goes on to say that “that result would severely erode States’ longstanding police powers to regulate gambling within their borders."
New Jersey opposes injunction that could leave it unable to enforce state laws
Key to the argument now being put across by the state of New Jersey is its claim that the whole state stands to suffer if Kalshi does obtain injunctive relief.
New Jersey claims that if the preliminary injunction stands, the state “will be unable to both enforce its duly enacted sports-wagering laws that are meant to protect its residents and collect fees and taxes on these sports wagers, which are used to fund programs to treat gambling addiction and to provide services for senior citizens and New Jersey residents with disabilities."
Kalshi’s circumvention of New Jersey’s existing regulatory framework has also been called into question. The published brief says that Kalshi’s would be able to accept “nearly all sports wagers” in New Jersey if it “simply obtains a license and complies with the Sports Wagering Act."
The company’s argument that it might be harmed as a result of the state’s restriction on college sports betting is said to be “both entirely speculative and purely monetary,” with New Jersey going on to argue that, in its view, “Kalshi will suffer no irreparable harm."
Kalshi had recently lambasted strict legislation on sports betting, but on this, New Jersey also disagrees.
In the published brief in opposition to the preliminary injunction, the state argues that “far from legislating 'so comprehensively' that Congress 'left no room for supplementary state legislation,' the CEA expressly parallels and incorporates state law.”
In its view, “New Jersey law furthers (rather than impedes) the CEA,” with both laws operating in harmony for the protection of players, and the reduction of both abusive sales and misuse of customer assets.
Kalshi’s claim that CEA preempts state laws called into question
A claim had also been made that the CEA preempted the New Jersey Sports Wagering Act, but New Jersey states that Kalshi’s event contracts “do not fall under the CEA … But even if they did, it would not matter. The CEA references state law several times. It expressly preempts certain state laws; but not sports-related event contracts at issue here.”
Importantly, Congress did intend to prohibit event contracts involving any gaming or activity that is unlawful under any Federal or State law.
Both sides are currently holding firm in a legal challenge that could well result in a clash between regulators and the Trump administration. It remains to be seen who will come out on top in this fight, but if Kalshi wins the battle it will set a precedent capable of causing real disruption in the sports betting industry.
