Prediction markets operator Kalshi will keep providing sports-related derivatives in Nevada following a federal judge's approval of an injunction against the Nevada Gaming Control Board (NGCB).
In a more detailed ruling after a decision made Tuesday night, US District Court Judge Anthony Gordon indicated that Kalshi was ready to support its case, while suggesting the NGCB would probably struggle to do the same. The Nevada regulator issued a cease-and-desist letter to Kalshi last month, instructing the operator to stop operations in the state by 5 p.m. on March 14, as it had not obtained permission from the Nevada Gaming Commission (NGC) to provide contracts for political and sports events in the state.
"Kalshi has shown a likelihood of success on the merits,” wrote Judge Gordon in his ruling. “Conversely, the defendants have not shown a likelihood of success on their countermotion for injunctive relief, so I deny their motion.”
The decision was made public 10 days after Kalshi announced it was taking legal action against the NGCB and the New Jersey Division of Gaming Enforcement (NJDGE) regarding its capability to provide sports event contracts in those states. The gaming regulator in New Jersey also instructed the prediction markets company to cease providing sports contracts in the state.
Nevada Decision Might Be Significant for Kalshi
Kalshi has recently obtained five cease-and-desist letters from Illinois, Montana, Nevada, New Jersey, and Ohio. Regulators in various other states, such as Connecticut and Massachusetts, have likewise indicated they wish to investigate the company’s provision of sports event contracts. It may not be a coincidence that online sports betting is permitted in each of those areas.
The Nevada decision may be important for Kalshi as Judge Gordon referred to the supremacy clause in his verdict. In basic terms, the supremacy clause indicates that a federally regulated company, like Kalshi, is more obligated to adhere to federal guidelines than to state regulations.
“Kalshi alleges in the complaint that this court has jurisdiction under 28 U.S.C. § 1331 because the action arises under the Supremacy Clause. Kalshi asserts the federal question is whether Nevada’s gambling laws are preempted by the Commodities Exchange Act (CEA) as applied to Kalshi,” wrote Gordon.
The judge remarked that the defendant, namely the state of Nevada, has not yet challenged federal jurisdiction over Kalshi in court. The federal regulator that derivatives platforms report to is the Commodities Futures Trading Commission (CFTC).
During a recent event, Kalshi co-founder and CEO Tarek Mansour emphasized that his company reports to federal regulators and that federal preemption might aid the firm in its numerous legal challenges at the state level.
Attention to Detail
One argument made by Nevada is that the CEA was not meant to override state gaming legislation. Certain legal and sports betting industry professionals have agreed with this perspective, highlighting that Kalshi resembles a sportsbook operator as it charges a fee on its contracts, similar to the vig associated with sports wagers.
Nonetheless, Kalshi contended that it does not participate in the pricing of contracts on its platform, be it sports or otherwise. Instead, it serves simply as a channel for clients to engage in those markets. Gordon concurred.
“Rather, Kalshi is the exchange on which such contracts are entered into between the counterparties. A clearinghouse holds the contracting parties’ funds until the specified event occurs, at which point the clearinghouse settles the contract according to the event’s outcome,” according to the ruling.
The judge noted that so far, there is no proof indicating the CFTC has moved to stop Kalshi from providing sports contracts.