Various State Authorities, Native American Tribes, and Industrial Organizations Team Up with New Jersey in a Judicial Battle Against Kalshi
Challenges Mount for Prediction Market Giant Kalshi
As the legal battle between Kalshi and noteworthy opponents grows more intense, a militia of new faces join the fray. The State of New Jersey, backed by the American Gaming Association (AGA), a coalition of 34 state attorneys general, several tribes, and other industry groups, are taking a stand against Kalshi.
A Wide-ranging Coalition Goes to Battle
Kalshi found itself squared off in federal court, challenging New Jersey's efforts to halt its sports-related event contracts. This courtroom spat marks the first instance where an appeal has been made, drawing attention due to its broad legal implications. As a result, the AGA, the 34 state attorneys general, representatives from the District of Columbia, the Northern Mariana Islands, various tribal organizations, the New Finance Institute, Stop Predatory Gambling, Texans Against Gambling, the Association of American Physicians and Surgeons, and the Casino Association of New Jersey, among others, have penned briefs in opposition to Kalshi's stance.
The burgeoning list of combatants could raise questions about FanDuel's purported partnership with Kalshi.
The States Speak Out
The briefs raise concerns over the potential repercussions of granting the Commodity Futures Trading Commission (CFTC) jurisdiction over sports wagering through event contracts, an area Kalshi maintains is distinct from traditional gambling. The AGA argues that the CFTC does not possess the necessary expertise, infrastructure, or enforcement capabilities required to manage the complexities of sports betting markets. Furthermore, they insist that proper oversight requires specialized knowledge and resources typically found within state regulatory bodies, not the CFTC.
States allege that Kalshi's interpretation of federal law would severely undermine their traditional authority to govern gambling. In their briefs, they claim that Kalshi's contracts constitute sports bets, smartly cloaked as commodity trades as a means to evade state gambling regulations. Additionally, states fear that giving Kalshi exclusive control through the Commodity Exchange Act (CEA) would strip them of their ability to regulate and enforce laws within the sports betting industry.
Tribal Opposition Grows
In a joint brief, tribal organizations accused Kalshi of breaching the Indian Gaming Regulatory Act (IGRA) and the terms of existing tribal-state compacts. They argued that Kalshi's portrayal of sports betting as a form of commodity trading is a deliberate hoax designed to sidestep federal gaming laws and tribal regulatory authority.
Moreover, tribal leaders contend that Kalshi's sports-related event contracts either violate existing laws or fall outside the limits of legal commodity derivatives. The tribal groups warn that allowing Kalshi to proceed under this framework would negatively impact the financial wellbeing of tribal communities and potentially weaken the regulatory systems put in place by federal law.
The ongoing debate regarding the encroachment of prediction markets like Kalshi on sectors traditionally overseen by tribal casinos is nothing new. Just a few weeks ago, the CFTC convened discussions with tribal groups on this very subject, with further dialogues still scheduled.
Yet, despite the mounting opposition, Kalshi's CEO, Tarek Mansour, remains resolute. In a March social media post, Mansour accused authorities of attempting to "stifle" the industry, a stance Kalshi maintains as the company prepares its defense. The court granted Kalshi an extension to file its arguments, extending the deadline to July 24.
- The American Gaming Association, a coalition of state attorneys general, several tribes, and other industry groups like the New Finance Institute and Casino Association of New Jersey, have voiced their opposition to Kalshi's sports-betting operations, citing concerns about the potential management complexities of sports betting markets by the Commodity Futures Trading Commission.
- The Indian Gaming Regulatory Act and the terms of existing tribal-state compacts have been breached, according to tribal organizations, due to Kalshi's manipulation of sports betting as a form of commodity trading, an attempt that may potentially evade state gambling regulations and undermine tribal regulatory authority.
- The sports betting industry could face substantial changes as the ongoing legal dispute between Kalshi and opponents escalates, especially considering the concerns raised by various groups, including sports leagues, state regulatory bodies, tribal organizations, and finance institutions, who argue that Kalshi's sports-betting contracts could have far-reaching implications for the industry's landscape and financial health.
