A federal judge in Utah has ruled in favor of the state, allowing it to enforce its gambling laws against Kalshi, a prediction market operator. This ruling, issued by Utah District Court Judge Robert Shelby, dismissed Kalshi's argument that its contracts should be classified as tradeable financial instruments rather than gambling. Kalshi claimed that it only needed to comply with the regulations of the Commodity Futures Trading Commission (CFTC) and was not subject to state gambling laws. Judge Shelby disagreed, stating that Kalshi had not sufficiently demonstrated its compliance with both state and federal laws.
In his ruling, Shelby noted, "Enforcement of State gambling laws is not inconsistent with the CFTC’s regulation and oversight of derivatives markets," and added that Kalshi had "not met its burden of showing otherwise." This decision represents another setback for Kalshi, the CFTC, and other prediction market platforms amid the ongoing legal disputes regarding these markets.
In a separate action, New York’s Governor and Attorney General recently filed a lawsuit against Kalshi, seeking $36 billion in damages for violations of state laws.
Following the Utah ruling, Kalshi plans to appeal the decision. A spokesperson stated that the firm believes it disagrees with the judge’s interpretation and will seek to overturn the ruling. The spokesperson mentioned, "Multiple courts have already recognized that prediction markets fall under exclusive federal jurisdiction, and we will continue to defend that position." The company intends to bring its case before the Tenth Circuit, adding to a growing number of appellate actions in various federal circuits regarding prediction markets.
Utah officials have celebrated this decision. Governor Spencer Cox expressed confidence in Utah’s legal stance, asserting, "Prediction markets are gambling, full stop… Today’s ruling affirms that Utah’s anti-gambling laws are an appropriate way to protect our citizens and are not preempted by federal law."
Attorney General Derek Brown echoed this sentiment, stating, "You can’t rebrand illegal gambling as a federal commodity. And today a federal judge agreed with us. Kalshi bet that clever branding would beat Utah law. Kalshi lost, and Utah won." Brown emphasized that offering online gambling constitutes a third-degree felony in Utah and highlighted the court’s ruling as a demonstration that Kalshi's federal permits do not exempt it from state regulations.
Despite assertions from Utah officials, the ruling did not address a core issue regarding the CFTC's lawsuits, which claim that the Commodity Exchange Act encompasses prediction markets. The CFTC's stance is that gambling is confined to casinos, a point Judge Shelby chose not to address.
Trades in prediction markets are on the rise, particularly those related to sports. While some major sports leagues have partnered with Kalshi and competing platform Polymarket, others have expressed concerns, as seen in correspondence from the NBA and NFL to the CFTC regarding recent regulatory approaches. On a positive note for Polymarket, the ATP recently entered into a partnership with the platform.
