The Volunteer State is looking to get a favorable ruling for prediction market operator Kalshi overturned in a circuit court.
Key Takeaways
- Tennessee's Attorney General argues that swaps are bets.
- His office points to comparisons with licensed sportsbooks FanDuel, DraftKings, and BetMGM in the brief.
- The Volunteer State believes the Frank-Dodd Act does not apply to prediction markets offering sports contracts.
Tennessee Attorney General Jonathan Skrmetti filed an opening brief in the United States Court of Appeals on Tuesday, requesting that the state be allowed to enforce laws against the trading exchange, which offers sports contracts in a jurisdiction with legal sports betting.
Kalshi was granted a temporary injunction earlier this year, keeping Tennessee from taking punitive measures against the prediction market operator, which argues it is federally regulated by the Commodity Futures Trading Commission. Judge Aleta Trauger agreed with Kalshi in February that its trades are defined as “swaps” and not bets under the Frank-Dodd Act, which is what Skrmetti is challenging.
“Kalshi can call their bets ‘swaps’ all they want, but everyone who so much as glances at the platform understands that this is sports gambling,” Skrmetti said in a statement. “Tennessee has laws governing wagering on sports - laws that Kalshi is desperately trying to avoid - that ensure sportsbooks provide protections for problem gamblers, pay taxes to support our education system, and provide a fair and transparent service to users.”
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State over federal
The attorney general argued the Frank-Dodd Act applies to “complex financial instruments that banks and large institutions use to hedge against financial risk,” not sports betting. Tennessee says Kalshi’s sports outcomes, which include markets like spreads, moneylines, and totals, bear no resemblance to what the Frank-Dodd Act covers.
“It’s a clever theory, but word games can’t absolve Kalshi of its obligations to follow Tennessee law,” Skrmetti wrote in the brief.
The AG noted that licensed Tennessee sports betting operators DraftKings, FanDuel, and BetMGM offer the same types of markets as Kalshi, but those sportsbooks are regulated. Skrmetti also argued that even if Kalshi’s trades are deemed as swaps, the Frank-Dodd Act can’t override Tennessee’s sports betting laws.
“We’re going to keep fighting to protect Tennesseans from operators who want all the benefits of this market and none of the accountability,” he said.
Legal battles
The AG’s office said the case is on an expedited basis in the Sixth Circuit, which is also hearing a similar case from Ohio. A judge ruled against Kalshi’s swaps argument in the Buckeye State in March, and Ohio regulators fined the trading exchange $5 million a month later.
In other prediction market news, Kalshi has lost battles in Nevada and Massachusetts, but the operator was awarded a temporary injunction in New Jersey in April.
There are more than a dozen states fighting prediction market sites like Kalshi, Polymarket, and Coinbase in court. Most of them are in jurisdictions where sports event contracts are colliding with legal sports betting.
