On one side, there’s Kalshi, Polymarket, and all other companies offering prediction market sports wagers–err, sports predictions–allied with the Commodities Futures Trading Commission (CFTC). On the other side, there are state regulators (and even a local regulator) who say that these aren’t predictions but are wagers. Cases from Washington state, New York, and Connecticut may mean we’ll have an answer on whether the “Duck Test” applies to prediction market sports.
On July 31st, New York sued Kalshi stating that among Kalshi’s offerings is sports gambling, and the CFTC stating that these are commodities trading is bogus. New York asked for $36 billion in penalties. The CFTC issued an emergency directive on August 11th to keep Kalshi operating in New York. Similar lawsuits were filed by Connecticut, Maryland, Utah, Nevada, Washington state, and the City of Baltimore. Kalshi asked for an injunction against New York; it was denied. Connecticut’s lawsuit resulted in Kalshi noting asking for an injunction (against Connecticut) based on the CFTC emergency declaration; it was denied over the weekend. I expect an appeal to the Court of Appeals for the 2nd Circuit to be filed today. (Kalshi has previously filed for an injunction against New York in the 2nd Circuit; that request is still pending.)
Sooner or later–likely sooner–the 2nd Circuit will rule on the emergency appeals (likely within a month). If Kalshi and the CFTC lose, an emergency appeal to the Supreme Court is near certain. What the Supreme Court does with this will likely determine the short-term future of sports on prediction markets. (If Kalshi loses at both the 2nd Circuit and the Supreme Court, Kalshi (and other prediction market companies) will be forced to stop offering sports predicitons in the US.) While I thought a Supreme Court ruling would be, at the earliest, next June, I think we may see something this year.
As to how this will play out, I’ve seen the arguments on both sides. And while sports on prediction markets are different–you can instantly adjust, etc. (here, I agree with the prediction market companies)–these are not the same as trading pork bellies. To a consumer, betting on the Cubs versus the White Sox on Kalshi or at the local sports book appears identical. That’s the big problem facing the prediction market companies. The back end is very different, but the front end–what it is for a consumer–is identical. In the long run, I believe the states will be successful in forcing the prediction market companies to either obtain a license from the state or stop operating. Now, I believe the long-term isn’t that long.
