The Legal War Over Prediction Markets Is Getting Crazier

The Commodity Futures Trading Commission has gone to war with the state regulators trying to rein in the industry’s sports gambling interests.

Last month I wrote about the tug-of-war between the Trump administration and the states over prediction markets. Kalshi, one of the largest U.S. prediction market companies, had just won a favorable ruling from a federal court in Minnesota with the help of a key federal financial regulator. Since then, things have escalated dramatically for the prediction-market industry on multiple fronts.

Nevada, which has extensive experience with gambling regulation, had appeared to strike a bargain with Kalshi earlier this year by getting it to agree to a geofencing restriction. In exchange for blocking people within the Silver State from accessing its markets, the state agreed to drop its ongoing case against the company. That agreement fell apart last week after investigators for the Nevada Gaming Control Board were able to circumvent the geofencing services used by Kalshi.

Under the terms of the agreement, Kalshi agreed to pay the state $120,000 per day if it failed to implement a geofence by August 12. The company instead lashed out at Nevada regulators by accusing them of providing “falsified information (breaking federal law) to hunt for a loophole and manufacture another legal grievance” against Kalshi. “This is not the behavior of a regulator trying to protect consumers—it is a vindictive waste of taxpayer dollars at the bidding of casinos,” Rick Heaslip, Kalshi’s general counsel, claimed on Twitter last week.

The Nevada Gaming Control Board was unamused, to say the least. “Kalshi’s accusations are baseless, and they cannot obscure the fact that Kalshi missed its agreed-upon deadline to comply with Nevada law,” the board said in a statement. “Kalshi’s consistent failures to comply with the court orders left the board with no other choice but to advise the court of Kalshi’s noncompliance.” That could open the door to more punitive sanctions against the company.

An even greater legal threat emerged in New York after state officials filed a lawsuit against Kalshi on July 31 for allegedly violating the state’s gambling laws. State law requires sports-betting companies to obtain a license from the state gaming commission and pay taxes on their winnings. New York also alleged that Kalshi violated the state’s age limit for sports betting by allowing 18, 19, and 20-year-olds to place bets on its........

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