Justices on the state’s highest court signaled that prediction market Kalshi is “swimming upstream” in its attempts to do an end-run around state sports gambling regulations. This thrusts the Bay State into a national debate over whether the booming prediction markets offer commodities subject to federal regulation or run-of-the mill sports betting traditionally regulated by the states.
In September, Massachusetts Attorney General Andrea Campbell sued Kalshi for offering what she claims equates to “illegal sports betting” without proper licensing. The lawsuit accuses Kalshi of skirting its responsibility to implement gambling guardrails, including adherence to the state’s legal betting age of 21. A Suffolk Superior Court judge issued an injunction in February, prohibiting Kalshi from operating in the state.
Kalshi wants the state to stay out of it, arguing it can only be regulated by the federal authorities because its offerings are no different from other derivatives such as financial swaps.
Derivatives were placed under the jurisdiction of the Commodity Futures Trading Commission (CFTC) by the 2010 Dodd Frank Act so a single authority could regulate swaps after the 2008 financial crisis. But several states – including Massachusetts – argue that Kalshi functions, advertises, and profits as a sportsbook because among its offerings are point-spread bets, over/under bets, proposition bets, and parlays.
The case in Massachusetts is just one of several involving Kalshi nationwide. Earlier this year, Arizona, Illinois, Connecticut, and New Jersey sent letters demanding the company – and other prediction market firms – cease operations within their borders. On April 6, a federal appeals court ruled New Jersey cannot classify Kalshi’s operations as sports betting and regulate it as such. Arizona’s attorney general filed criminal charges against the company for allegedly operating an illegal gambling business and sanctioning betting on the 2024 election cycle.
In arguments on Monday, the Massachusetts justices grilled Kalshi on how their swaps fundamentally differ from sports bets. Grant Mainland, an attorney for Kalshi, argued the company’s offerings resemble the derivatives overseen by the CFTC.
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Published by MassINC