A federal court has ruled that Kalshi is unlikely to succeed with its main legal arguments, especially noting that sports betting contributes up to 90% of the prediction market's revenue.
In a recent decision, a federal judge in Connecticut denied Kalshi's attempt to prevent the state from enforcing its gambling regulations against the prediction market. The judge determined that Kalshi's contracts related to sports events do not qualify as swaps under federal commodities law, and that the Commodity Exchange Act (CEA) does not override state regulations. This ruling also affected Coinbase, as the same judge dismissed its request for a preliminary injunction in a related matter.
U.S. District Judge Vernon D. Oliver concluded that Kalshi's chances of winning its case against the Connecticut Department of Consumer Protection were slim. He highlighted that Kalshi's contracts, while described in various ways, fundamentally resemble sports bets. In his ruling, Oliver referenced a previous Nevada court decision that had ruled similarly against Kalshi.
On the same day, Judge Oliver used the Kalshi case as a reference point when denying Coinbase's request for a preliminary injunction against state officials. Both companies presented their cases during hearings held on February 11.
This ruling adds to a series of unfavorable decisions for Kalshi. The court observed that federal judges have issued conflicting rulings in similar cases, yet every state court that has ruled so far has sided against Kalshi.
Judge Oliver first examined whether Kalshi's contracts could be classified as swaps under the CEA, agreeing with the state's position that they do not meet this criterion. A significant part of his analysis revolved around Congress's use of the terms 'occurrence' and 'event.' The court determined that these terms refer to whether an event takes place and to what extent, rather than to potential outcomes.
In the context of sports, Oliver noted that the term 'event' typically refers to the sporting event itself, not its outcome. He cited a Nevada ruling against Crypto.com to support this interpretation. For example, the Kentucky Derby represents the event, while the winner is merely an outcome. Similarly, the winner of a boxing match does not constitute a separate event.
Earlier this year, a federal judge in Tennessee reached a different conclusion, granting Kalshi a preliminary injunction by stating that an outcome could be considered an event. However, Judge Oliver's interpretation was more aligned with the Nevada court's view.
Oliver concluded that Kalshi's sports contracts do not meet the statutory definition of a swap, as they do not hinge on whether a sporting event occurs or to what extent. Instead, these contracts rely on the results of the event or specific occurrences during the game. Treating these outcomes as distinct 'events' would deviate from the standard meaning of the term.
Furthermore, the court determined that the outcomes do not qualify as swaps since they lack any potential financial, economic, or commercial implications as defined by the CEA.