Kalshi Files Lawsuit Against Ohio Gambling Regulator

Adam Roarty is a journalist covering sports betting, regulation, and industry innovation for 78n. His coverage includes tax increases in the UK, covering breaking stories in the ever-evolving landscape of US betting such as the... Kalshi has filed a lawsuit against the Ohio Casino Control Commission (OCCC) and the Attorney General to prevent the state from enforcing its cease-and-desist order, which was sent earlier this year. The action also follows the OCCC warning licensed gambling companies about entering prediction markets. In the lawsuit, Kalshi says these actions “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 status as a CFTC-licensed exchange.” The complaint reiterates the same argument Kalshi has presented in previous court filings, namely that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over its event contracts. As the CFTC is a federal body, this means Kalshi is not subject to state gambling laws. The CFTC has yet to take action against sports markets. Kalshi has self-certified a range of markets, expanding to include parlays, prop bets, totals, and point spreads, in addition to its initial offerings of futures and moneylines. Kalshi traded around $2 billion in the last two weeks, with over 90% of its trading volume on sports. It took the platform six months to reach $2 billion of sports trading volume after launching its first markets in January. The NFL season has seen the company rapidly expand its marketing and reach across multiple markets. In adverts, Kalshi claims that sports betting is legal in all 50 states, targeting users in Texas, and California in particular. As investors worry about the growing threat of prediction markets, the stock prices of top sportsbooks has plummeted. DraftKings’ price continues to slide and fell below $33 on Wednesday from over $48 at the end of August. At the same time, the New York Stock Exchange owner ICE announced a $2 billion investment in Polymarket as the platform prepares to relaunch in the US. Upon reentering the US market, Polymarket is likely to receive the same treatment from state regulators. In states such as Ohio, where sports betting is legal, the growth of prediction markets poses a threat to the state’s tax revenue. Even when Kalshi was limited to futures and match-winner markets, Ohio’s regulators opposed the platform. In the cease-and-desist letter sent back in April, OCCC Executive Director Matthew Schuler wrote, “Plainly stated, Kalshi is operating online sports gaming.” In addition to the OCCC, a group named Ohio Gambling Recovery filed a lawsuit against Kalshi in July. The group is seeking compensation for Ohio residents who have lost money on Kalshi, claiming it is an illegal betting platform. Kalshi requested that the case be moved to federal court, viewing this as more favorable for arguing its case of preempting state laws. Despite advertising that it offers sports betting, Kalshi’s lawsuit claims that its markets are “economic instruments” and not wagers. It states, “Kalshi is not a sportsbook. It is a federally regulated designated contract market. Its contracts, while sometimes referencing athletic performance, are economic instruments, not wagers. The State’s attempt to recast them as gambling is preempted and unconstitutional.” Ohio was one of seven states to send a cease-and-desist letter to Kalshi back in April. Initially, the OCCC gave Kalshi until April 16 to comply with its request to stop offering sports markets in the state. Conversations continued between the two parties, but with no resolution, Kalshi has taken the same action as in Maryland, Nevada, and New Jersey. Kalshi is seeking a temporary restraining order (TRO) and a preliminary injunction, which were granted in Nevada and New Jersey but denied in Maryland. Kalshi has appealed the ruling in Maryland and has been allowed to continue operations while the appeal is pending. In a further blow to prediction markets, last week, Crypto.com was denied a preliminary injunction after filing a lawsuit in Nevada. The same judge who granted Kalshi’s injunction in April denied Crypto.com’s. The case in Ohio has been assigned to Chief Judge Sarah D. Morrison. If she also denies the request for an injunction, it could encourage more states to take action against Kalshi and other operators. Arizona, Illinois, and Montana’s gambling regulators were the others to send cease-and-desist letters to Kalshi. Additionally, like Ohio, Arizona warned companies about starting their own or doing business with prediction market platforms. Michigan also sent a similar warning last week. More court battles appear to be on the horizon. Adam Roarty is a journalist covering sports betting, regulation, and industry innovation for 78n. His coverage includes tax increases in the UK, covering breaking stories in the ever-evolving landscape of US betting...