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A federal judge in Nevada has ruled that prediction markets start-up Kalshi is subject to state gambling rules, in a move that could derail its rapid growth and grant a significant reprieve to US sports betting companies.
Rather than offering fixed odds or point spreads like a traditional sportsbook, prediction market platforms such as Kalshi offer shares in binary outcomes, such as a certain team winning or losing a football match.
The start-up rose to prominence offering political election wagers, but is now making rapid inroads into the sports gambling market, with bets on sports on Kalshi approaching $1bn a week, according to an analysis by the Financial Times.
Prediction market providers have argued they should be regulated as derivatives platforms rather than betting groups, because the contracts are structured as peer-to-peer trades. That would put them under the jurisdiction of the Commodity Futures Trading Commission, rather than state gaming regulators.
In a filing published on Tuesday, US District judge Andrew Gordon overturned an earlier order blocking enforcement actions by Nevada gaming authorities against Kalshi.
“Event contracts that turn on the outcomes of sporting events are not swaps and thus do not fall within the CFTC’s exclusive jurisdiction,” Gordon said in the ruling.
While Nevada is not the first state court to rule on prediction market platforms, it is seen as a leader in gambling regulation in the US.
Shares of sports betting companies DraftKings and FanDuel owner Flutter — which have been hit in recent months by fears that the rapid growth of prediction markets will curb the hitherto fast growth of the regular US sports betting market — jumped after the ruling was unveiled on Tuesday.
DraftKings and Flutter shares finished the day up 7.6 per cent and 2.1 per cent respectively in New York.
Kalshi said it planned to appeal against the decision.
“As other courts have recognised, Kalshi is a regulated, nationwide exchange for real-world events, and it is subject to exclusive federal jurisdiction. It’s very different from what state-regulated sportsbooks and casinos offer their customers,” the company said.
Polymarket and Kalshi, the world’s two largest prediction markets, both saw a strong uptick in trading after they successfully tipped Donald Trump as the favourite in last year’s US presidential election.
The president’s eldest son, Donald Trump Jr, is a strategic adviser to Kalshi and an investor in Polymarket.
Several states and Native American tribal groups have alleged that Kalshi’s markets constitute illegal and unregulated sports betting that do not fall under the jurisdiction of the CFTC and should be overseen by states.
Other state courts have taken differing approaches to prediction markets in similar rulings in cases that were brought by Kalshi, which was seeking an injunction against cease-and-desist orders.
Kalshi prevailed in New Jersey but lost in Maryland and now Nevada. Analysts expect that the decision over whether prediction market platforms should be subject to state gambling regulations will ultimately fall to the US Supreme Court.
Gordon’s order stated that Kalshi “relies on a strained reading of the already convoluted Commodities Exchange Act in an attempt to evade state regulation”.
He added: “Kalshi’s interpretation would require all sports betting across the country to come within the jurisdiction of the CFTC . . . that interpretation upsets decades of federalism regarding gaming regulation, is contrary to Congress’ intent behind the CEA and cannot be sustained.”
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