A federal judge in Ohio has rejected Kalshi's request for a preliminary injunction against state regulators, affirming that the company must adhere to Ohio's gambling laws.
U.S. District Judge Sarah D. Morrison stated that the Commodity Exchange Act does not supersede Ohio's regulations regarding sports betting. She dismissed Kalshi's claim that its contracts should be classified as federally regulated financial instruments.
In her ruling, Morrison noted, “There is no indication that Congress intended to override state laws concerning sports gambling.”
Kalshi, based in New York, enables users to speculate on the outcomes of various events, including sports, politics, and international affairs. The firm contended that its sports contracts should be viewed as “swaps,” akin to derivatives in financial markets.
However, Morrison countered this argument, explaining that swaps are typically associated with elements that directly affect commodity prices.
She stated, “Factors such as currency exchange rates, weather conditions, and energy prices influence commodity values; however, the score of a Huskies-Bobcats game does not.”
The judge further argued that categorizing sports contracts as swaps could lead to unreasonable conclusions.
“This reasoning is reinforced by the Court's duty to avoid absurd outcomes,” Morrison remarked, adding, “Ohio asserts that defining a 'swap' to encompass a sports-event contract would yield illogical results, and the Court concurs.”
Ohio Attorney General Dave Yost praised the ruling, asserting that Kalshi's offerings closely resemble gambling.
“Kalshi claimed that the federal Commodity Exchange Act takes precedence over Ohio law. That is incorrect,” Yost stated on social media. “These ‘prediction markets’ have surged and closely resemble gambling. A significant victory for Ohio!”
A spokesperson for Kalshi indicated that the company intends to appeal the decision. “We respectfully disagree with the Court’s ruling, which diverges from a recent federal court decision in Tennessee, and we will seek an appeal promptly,” the spokesperson commented.
This case is part of a larger conflict between state regulators and federal authorities regarding the governance of prediction markets. Other platforms, like Polymarket, have argued for the jurisdiction of the Commodity Futures Trading Commission over their contracts.
CFTC Chair Michael Selig has defended prediction markets, asserting their economic value.
“They provide essential functions for society by enabling ordinary Americans to mitigate commercial risks, such as fluctuations in temperature and spikes in energy prices,” Selig stated. “They also act as a vital check on our media and information sources.”
Nonetheless, some lawmakers have raised concerns about their effects. Utah Governor Spencer Cox (R) remarked that prediction markets “are ruining the lives of families and countless Americans” and “should not exist” in his state.
Judicial outcomes in similar cases have varied. Federal judges in Tennessee and New Jersey have recently ruled in favor of Kalshi, while courts in Massachusetts and Nevada have sided with state regulators.
Currently, sports betting is legal in 39 states and the District of Columbia, with online wagering allowed in 32 of those areas. Before the U.S. Supreme Court's 2018 decision that legalized sports betting, Nevada was the only state with legal sports wagering.