In the prediction market sector, significant developments occurred this week affecting several important players. A District Court judge ruled against Kalshi, denying its motion for a preliminary injunction in New York, which would have allowed the prediction market to maintain its sports event contracts online.
In North Carolina, Governor Josh Stein signed a new state budget establishing a 6% tax on net trading fee revenue for prediction markets. This development was part of a broader discussion on sports event contracts at the National Council of Legislators from Gaming States Summer Meeting, where gaming stakeholders talked about how state lawmakers might address these contracts.
Kalshi enjoyed a legal victory in Michigan as a Circuit Court modified a temporary restraining order (TRO) against the company regarding its sports event contracts. The updated TRO permits Kalshi to geofence in Michigan, enabling the company to block users within the state from accessing sports event contracts by employing addresses connected to active trading accounts. An emergency motion filed last week allowed this address-based blocking to take place.
Originally, the TRO granted by Circuit Court Judge Rosemarie Aquilina required Kalshi to utilize a third-party geolocation service to restrict access and imposed a significant financial penalty of $120,000 for each day the geolocation requirement was not met. While Kalshi appeals this TRO, it is currently authorized to use addresses to prevent access to the event contracts.
Additionally, the Coalition for Prediction Markets has appointed Brian Quintenz, a former Commodities Futures Trading Commission (CFTC) Commissioner, as a senior advisor. In this role, Quintenz will consult with stakeholders from finance and prediction markets regarding regulatory guidance, as event contracts encounter challenges from state officials about their legal oversight. Quintenz remarked, "Regulated prediction markets have created a new information economy built on radical transparency, fairness, and real opportunity for people on Main Street – not just institutions on Wall Street," expressing enthusiasm for fostering the growth of these markets under a suitable federal regulatory framework.
Quintenz, who sits on Kalshi’s board, has a storied history with the CFTC, having been nominated for a leadership position that did not come to fruition after a stalled vetting process fostered by notable pushback from financial interests. After facing criticism during a Senate subcommittee hearing last June regarding his views on CFTC regulation of prediction markets, he now aims to utilize his past experience to aid the coalition.
Meanwhile, Kalshi is entangled in a class action lawsuit in the U.S. District Court for the Southern District of New York. Plaintiffs allege that Kalshi improperly gathered sensitive user information and shared it with third-party companies such as AppLovin, Google, TikTok, and LinkedIn. The lawsuit claims Kalshi also monitored user searches and viewing activity, and the group is seeking various forms of damages and a declaratory judgment.
Finally, Goldman Sachs has instituted a restriction on certain event contracts, prohibiting employees from trading contracts linked to financial markets, financial companies, and elections. However, the firm continues to permit trades related to sports and entertainment event contracts. Violations of this new rule could result in penalties, including profit forfeiture exceeding $200, account closures, and even termination of employment.
