A court in Washington state has issued a preliminary injunction against the prediction market platform Kalshi, halting its ability to offer contracts related to sports events. This decision comes after the court determined that Washington is likely to succeed in its argument that these contracts breach state gambling regulations.
Judge John McHale of the King County Superior Court ruled that the Commodity Exchange Act (CEA) does not override Washington's gambling laws. This ruling dismissed Kalshi's claim that its federally regulated event contracts were exempt from state oversight.
The court indicated that Kalshi is likely participating in illegal gambling activities, including bookmaking and professional gambling, as defined by Washington law. Furthermore, the judge noted that Kalshi's marketing of its services as "legal betting" in Washington could mislead consumers, violating the state's Consumer Protection Act.
In his order, Judge McHale stated, "Kalshi offers illegal gambling activities to Washington consumers and solicits bets from them on its platform." He emphasized that the public interest supported the injunction, asserting that the potential harm to consumers from Kalshi's operations outweighed any negative impact on the company.
The injunction will not take effect until after August 5, with the court instructing both parties to propose terms by August 3. The court hopes Kalshi might provide suggestions on how to protect Washington residents during this process.
Judge McHale also dismissed Kalshi's main legal argument, clarifying that the CEA does not preempt Washington's gambling laws and that the regulation of gambling differs significantly from that of futures markets. He noted that Congress did not intend to limit states' authority to regulate gambling.
A spokesperson for Kalshi expressed disagreement with the court's ruling, stating, "States don't have jurisdiction to regulate prediction markets. Many courts, including the Third Circuit, have confirmed this. We are disappointed to see Washington state continue to waste taxpayer dollars."
This ruling represents another legal challenge for Kalshi as it contends with state regulators over whether its sports-event contracts fall under federal commodities law or are also subject to state gambling laws. Washington joins Massachusetts, Nevada, and Michigan in securing an injunction against Kalshi's sports-event contracts.
According to sports and gaming attorney Daniel Wallach, courts have now made 23 decisions regarding requests for preliminary injunctions or temporary restraining orders in prediction market cases, with states winning 19 of those cases. "The tide is turning sharply in the states' favor," Wallach commented.
He added that while the issue may eventually reach the U.S. Supreme Court, the landscape for Kalshi's sports-related contracts could change significantly in the coming months, particularly as it faces injunctions preventing it from offering these contracts.
In a related matter, the Commodity Futures Trading Commission has filed a lawsuit in New York, seeking a declaratory judgment that federal law grants it exclusive authority over event contracts, highlighting the ongoing legal complexities surrounding the regulation of prediction markets.