- A Massachusetts judge is deciding whether to block Kalshi from letting people bet on sports games, questioning if Wall Street financial rules really should apply to predicting who wins a sports game.
- Kalshi claims it runs a federally regulated trading platform, but the state argues the company is just running an illegal sportsbook that even 18-year-olds can access.
- A ruling expected in January could determine whether prediction markets get treated like gambling operations or financial exchanges across the entire country.
BOSTON — A Massachusetts judge is weighing whether to shut down Kalshi’s sports prediction operations in the state, raising pointed questions about how a federal law designed to prevent another financial meltdown could reasonably apply to betting on sports games.
During a hearing on Tuesday, Suffolk County Superior Court Judge Christopher Barry-Smith expressed his confusion over the regulatory conflict. According to the state, Kalshi is running an unlicensed gambling site where users as young as 18 can place bets on outcomes in sports.
According to Kalshi, it runs a federally regulated financial marketplace where customers trade contracts for events instead of bets. The distinction is important for the New York startup, which recently raised $11 billion.
In September, Massachusetts Attorney General Andrea Joy Campbell was the first state attorney general to file a lawsuit against Kalshi. Her office is now requesting an injunction that would prevent the platform from providing Bay State residents with sports contracts.
Federal Law Meets Sports Gambling
Kalshi’s central defense didn’t seem to convince Barry-Smith. The corporation argues that the 2010 Dodd-Frank Act, which Congress established to regulate complex derivatives following the 2008 financial crisis, gave the Commodity Futures Trading Commission sole power over its products.
State attorneys fiercely resisted, pointing out that legislators were more concerned with averting Wall Street disasters than they were with opening the door for legal sports betting to bypass state casino regulations. The judge appeared to agree, asking whether it made sense for federal commodities law to apply to something as simple as picking game winners.
He also investigated whether the extent of federal preemption would change over time, arguing that given how widespread legal gaming has grown, what may have appeared ridiculous in the 1970s now seems different.
Six other states are facing similar challenges for Kalshi, but Massachusetts was the first to get a court order to stop operations. A Nevada judge’s recent ruling that sports results do not meet federal law’s definition of real events caused the company to lose ground. These rulings bolster the claims made by Massachusetts sportsbooks and gaming authorities around the country.
Barry-Smith stated that he anticipates making a decision in January, which might change how prediction markets function nationwide.
