Issues surrounding prediction markets’ sports contracts continue to play out in court. The latest action saw a federal judge in Ohio rule that Kalshi must follow state gaming laws.
US District Judge Sarah D. Morrison ruled on Monday that the Commodity Exchange Act doesn’t override state gaming laws. Prediction markets have argued that their sports markets are different from traditional sports wagering and regulated solely by the Commodity Futures Trading Commission (CFTC).
In the case brought by Kalshi against the Ohio Casino Control Commission (OCCC) and state Attorney General Dave Yost (R), Morrison disagreed with that assertion.
“History reveals no evidence that Congress intended to pre-empt state sports gambling laws,” the judge noted in her opinion.
Setback For Prediction Markets
Kalshi argued that prediction market transactions should be treated as “swaps,” like those found in more traditional financial markets.
Morrison disagreed with that and said swaps are “understood as a transaction involving financial instruments and measures that traditionally and directly affect commodity prices.” She added: “Currency exchange rates, the weather, and energy costs all do that; the number of points scored in the Huskies-Bobcats game does not.”
Kalshi had hoped for a temporary restraining order against the state from enforcing gaming laws against the company. A Kalshi representative later told NBC News that the company would probably appeal the ruling.
Yost celebrated the ruling and continues to argue that companies like Kalshi and Polymarket are offering sports betting and circumventing state gaming law.
“Kalshi argued the federal Commodity Exchange Act pre-empts enforcement of Ohio law. Nope,” he posted on X. “These prediction markets have exploded and look an awful lot like gambling. Big win for Ohio!”
The ruling could have other ramifications. Gaming legal expert Daniel Wallach noted on X that the New York Attorney General’s Office has now filed the Ohio federal court decision as “supplemental authority” in its own lawsuit with Kalshi and “thanks the court for its attention to this matter.”
“Expect more states to do this in the next 24-48 hours,” Wallach said.
Growing Concerns Over Prediction Markets
State gaming regulators have battled prediction markets for nearly a year. That includes Nevada, which won a restraining order against Polymarket from operating in that state.
In January, a state judge in Massachusetts also granted a preliminary injunction against Kalshi, barring it from offering sports contracts in the state. In one of the more recent moves against the industry, regulators in Tennessee sent cease-and-desist letters to three prediction market companies.
Federal lawmakers have also been critics of the industry. In September, several legislators sent a letter to the CFTC calling for reform. The legislators raised questions about whether the contracts were simply end-runs around state sports betting laws. They pointed to a lack of compliance with betting age requirements and other rules that legal sportsbooks must adhere to.
Former Trump White House Chief of Staff Mick Mulvaney recently said the platforms are more like traditional gambling than actual investing. He said prediction markets should be governed by state gaming regulators rather than by the CFTC.
