Kalshi Faces New Class-Action Lawsuit Amid Ongoing Legal Struggles
Kalshi Faces Growing Legal Pressure Over Sports Event Contracts
Kalshi, a prediction market platform, is encountering increasing demands to halt its sports event contracts in regions where sports betting is already regulated. The company argues that its offerings fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC) rather than local sports betting laws, positioning its products as distinct from traditional sports gambling.
New Class-Action Lawsuit Challenges Kalshi’s Status as a Non-Betting Platform
Kalshi has maintained that its markets represent financial assets, thereby exempting it from state sports betting regulations. However, multiple states including Nevada, Massachusetts, and Missouri disagree. Recently, a class-action lawsuit was filed in the Southern District of New York targeting Kalshi’s operations.
The lawsuit aims to reveal Kalshi’s platforms as illegal, accusing the company of running an unlicensed sportsbook disguised as a financial product. Despite Kalshi’s denial and its claim of offering a unique product without traditional betting odds, the lawsuit highlights that about 90% of Kalshi’s trading volume comes from sports event contracts, totaling approximately $2 billion.
So far, seven plaintiffs have joined this legal action. They allege that Kalshi has marketed an unlawful gambling product, used deceptive tactics, and violated gambling statutes to attract users.
Kalshi defends itself by differentiating its model from usual sportsbooks, emphasizing that it does not set odds but allows users to place predictions against each other to determine probabilities and profits. Nevertheless, the lawsuit counters this defense by asserting that users are effectively betting against each other, contradicting Kalshi’s claims.
The complaint also questions the presence of so-called “other traders” on the platform, suggesting these may actually be Kalshi employees placing bets to stabilize the market when certain outcomes become heavily favored.
Major Companies Leaving Traditional Sports Betting to Focus on Prediction Markets
The broader market landscape is shifting. Industry leaders like FanDuel and DraftKings have voluntarily given up their Nevada sports betting licenses. Concurrently, a Nevada court ordered Kalshi to stop offering sports contracts within the state. Despite these setbacks, these companies appear committed to pursuing prediction markets even if it means forfeiting key gambling licenses.
Similarly, Underdog withdrew from Missouri shortly before launching, citing a strategic move to concentrate on prediction markets amid increased regulatory hostility from local authorities.
