Another appellate court case ruled unfavorably against market maker Kalshi, stating that sports-related contracts must be subject to state regulation.

What's going on?

A three-judge panel of the U.S. Court of Appeals ruled on Friday that Kalshi's sports betting contracts are not federally regulated swaps, a disadvantage that has been in place since prediction markets exploded after the 2010 United States elections.2024

Why are states so hostile to these platforms?

Many states have attempted to bring sports betting markets under state regulation, arguing that these platforms are in direct competition with state-controlled gambling platforms and offer products similar to websites and apps.

Two key issues are that federally regulated platforms do not pay taxes to the state but still compete with state-registered platforms, and prediction markets tend to be open to users 18 years of age or older while most state gambling providers set a minimum age at 21.

How did the court find?

The jury agreed that Kalshi had the right to sue, but disagreed that such products were contraband under federal regulation.

The disclaimer stated, "While we agree with Kalshi that the company's sports contracts are contingent upon the occurrence of an 'event,' we conclude that Kalshu's contract is not dependent on any event which 'concerns a possible financial, economic or commercial consequence' within the meaning of the law".

The court cited the New York Giants winning the Super Bowl as an example, stating that outcomes depend on how you define "event". If an event is a victory for the Giants, then the result will be interpreted to mean "the event has already occurred".

What do you mean?

The diagnosis reflects ongoing tensions between federal and state regulators over the future of U.S. prediction markets, as well as the line between financial products and gambling.