Kalshi and Robinhood’s sports prediction markets are under fire — and the outcome could be pivotal for the future of US sports betting.
Regulators in Nevada and New Jersey, two of the US’s longest-standing gambling markets, have sent cease-and-desist orders to the futures trading platform Kalshi to stop it from taking trades on sports events. The New Jersey Division of Gaming Enforcement sent the most recent cease-and-desist on Thursday. Fintech platform Robinhood, which uses Kalshi’s platform to offer sports contracts, also got a cease-and-desist letter in New Jersey, and Massachusetts is investigating the company’s sports contracts.
“We have been targeted before, we have fought before, and we have won before,” CEO Tarek Mansour said in a statement to Business Insider. “This time will be no different.”
A Robinhood spokesperson also said in a statement that the company doesn’t think “these contracts run afoul of any state laws.” Robinhood pulled its March Madness contracts from New Jersey, though.
Prediction markets have surged in popularity since the 2024 US presidential election and companies including Kalshi and Crypto.com have expanded into sports events. Sports predictions are similar to betting in that users can put money on the outcome of a game, but those contracts can be traded and typically only include whether a team will win or lose (rather than on player stats or parlays).
Kalshi has driven over $320 million in trading volume on the outcome of the men’s March Madness championship alone, according to its website. March Madness is one of the biggest US sports betting events of the year.
While sports gambling is limited to the 39 US jurisdictions where it’s been legalized and regulated, sports predictions from Kalshi are being offered in all 50 states. Sports predictions are a major threat — and opportunity — for betting operators, some of which have expressed interest in predictions and are likely watching closely to see how Kalshi’s regulatory battle plays out.
“This is a historical legal battle that pits states’ traditional authority over gaming and sports betting against whether commodities exchanges regulated by the [Commodity Futures Trading Commission] can include sports betting-like offerings,” said James Kilsby, chief analyst at Vixio, a regulatory tech company that works with the gambling industry.
All eyes are on Kalshi
Kalshi has sued regulators in Nevada and New Jersey in response to the cease-and-desists. The company argued, in part, that Kalshi is a “federally regulated exchange” overseen by the Commodity Futures Trading Commission, which has the sole authority to approve or reject its events contracts, per a March 28 court filing.
It described the ways its sports contracts differ from betting, including that they “do not reflect a ‘bet’ against the ‘house.’” (Contrary to that point, some states’ sports betting laws cover peer-to-peer betting.)
Ultimately, Kalshi argues that shutting down in Nevada and New Jersey could violate CFTC rules that its events contracts be open, fair, and accessible.
If the courts and the CFTC decide Kalshi’s sports contracts are legitimate, it could “trigger a significant reaction from the sports betting industry,” Kilsby said.
“It’s almost impossible to imagine a scenario in which FanDuel and DraftKings don’t ultimately want to move into that market as well,” he said. “I think you’ll very quickly see more companies positioning themselves to launch sports exchange platforms under the CFTC guidelines.”
That said, the legal and regulatory saga will likely last several months, and other hurdles could emerge, legal, regulatory, and gambling insiders told BI.
“The sports wagering industry is looking at this very carefully, and they’re trying to decide,” said Andrew Kim, an appellate and gaming litigator at Goodwin. “They have a balancing act right now of not offending the regulators that oversee their prime product but also not missing out on an opportunity to jump to the kind of innovative gray areas that really formed [daily fantasy sports] and all the other sports wagering industries to begin with. “
More states could oppose sports predictions, as could tribal groups with the authority to conduct gaming on many lands and exclusivity with some states.
Gaming industry consultant Dustin Gouker, who broke the news about the New Jersey cease-and-desists through his Closing Line newsletter, said the letters could be a “bellwether of what’s going to happen next.”
Sports predictions threaten revenue for states like Nevada and New Jersey. New Jersey, which led the expansion of legal sports betting in the US by appealing a federal ban, brought in over $1 million in sports wagering revenue in January, making it the third largest US market, according to the American Gaming Association.
The issue also undermines states’ control over what constitutes sports betting within their borders and what they do and do not allow. The matter could eventually end up at the Supreme Court, depending on where the lower courts and the CFTC land.
And it’s hard to ignore that this battle over the states’ rights to regulate sports betting is coming at a key moment for the industry: March Madness.
In its cease-and-desist letters, New Jersey’s Division of Gaming Enforcement pointed to the state’s restrictions on betting on college sports. The state prohibits betting on college games that take place in the state or involve local teams like Rutgers.
“Other states are looking to what happens here, and whether they’re successful, and how Kalshi and Robinhood respond,” Gouker said.
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