This week, prediction markets encountered increasing scrutiny from both the legal system and lawmakers, despite operators reporting unprecedented activity during the World Cup and expanding their offerings.
As the World Cup results demonstrated significant growth for prediction markets, the legal and political pressures intensified. A preliminary injunction was granted by Washington against Kalshi, while Congress scrutinized sports event contracts and lawmakers proposed regulations or outright bans on prediction markets.
Washington Court Developments
A judge in Washington state issued a preliminary injunction against Kalshi, concluding that the company’s event contracts likely contravene state gambling laws. The court dismissed Kalshi's arguments regarding federal preemption.
In response, Crypto.com’s prediction market platform, OG, filed a federal lawsuit against Washington officials, arguing that the state’s classification of prediction markets as unauthorized and the lawsuit against Kalshi pose a real threat of similar actions against them.
Increased Legislative Attention
The House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development held a hearing focused on customer protections and the integrity of sports event prediction markets. The hearing featured both advocates for prediction markets and representatives from the gaming industry who opposed this emerging sector.
Gaming representatives claimed that sports contracts operate like sports betting but evade state licensing, taxation, responsible gambling requirements, and tribal gaming rights. Conversely, advocates for prediction markets argued that these products are federally regulated derivatives under the oversight of the CFTC.
Lawmakers also expressed concerns about whether the CFTC has adequate resources to oversee this rapidly growing sector. The agency's directive for Kalshi to honor specific Michigan trades despite a court ruling drew considerable attention.
Wisconsin's Warning to Election Traders
The Wisconsin Elections Commission cautioned residents that engaging in trading election prediction contracts could lead to felony charges if they vote in the same election. The commission clarified that Wisconsin law disqualifies individuals from voting if they have placed or have a financial interest in a bet on the election's outcome, indicating that contracts from platforms like Kalshi and Polymarket likely qualify as bets under the law.
New Legislative Proposals on Prediction Markets
On July 22, Representatives Steven Horsford and Mark Amodei from Nevada introduced the Prediction Markets Are Gambling Act in the House, marking a new federal bill aimed at prediction markets. This legislation would prevent registered entities from listing, clearing, or trading contracts related to sporting events or casino-style games.
Simultaneously, Pennsylvania lawmakers proposed a bill to establish a regulatory framework for prediction markets within the state. House Bill 2711 aims to set state standards for consumer protection, participation, and market integrity, including age verification and controls against insider trading, but notably does not create a licensing system or tax for prediction markets.
Arizona's Restrictions on Employee Trading
In Arizona, government agencies are taking steps to restrict employees from utilizing nonpublic information in prediction markets. Several local governments have implemented or are considering regulations that would bar employees from trading contracts based on information acquired through their official roles. This follows an executive order from Arizona Governor Katie Hobbs prohibiting such activities.