Kalshi now has three lawsuits against US regulators

The list of lawsuits filed by US financial firm Kalshi keeps growing. The firm filed a third lawsuit against a gaming regulator this week, this time taking Maryland Lottery and Gaming to court.

Kalshi previously filed suits against both the Nevada Gaming Control Board (NGCB) and the New Jersey Division of Gaming Enforcement (DGE). At issue in all three suits is sports-related event contracts and whether or not they violate state sports betting laws.

Event contracts have expanded from just weather

Event contracts allow purchasers to hold a position on whether or not a certain event will happen. Originally established in the US to hold positions on weather events that could impact crop outputs. Over more than a century, these contracts evolved to include stock market performance, quarterly financial reports, who will be the next Pope and, controversially, elections.

Earlier this year, Kalshi and other platforms offering event contracts like Robinhood and Crypto.com started offering event contracts on the outcome of a single sporting event. Starting with the Super Bowl and expanding to NCAA basketball’s March Madness as well as regular-season NBA and NHL games, the groups are offering a rapidly growing range of sports contracts.

Many regulators have taken issue with this emerging field, even though event contracts are regulated by the federal agency Commodity Futures Trading Commission (CFTC). While CFTC regulates these markets, brokers like Kalshi actually self-certify markets without explicit CFTC approval.

The CFTC, which is currently overseen by Acting Chair Caroline Pham while President Donald Trump’s appointee for the position Brian Quintenz awaits Congressional confirmation, plans to discuss the issue of sports contracts at a round table at the end of April.

Gaming regulators say these contracts are betting

In the meantime though, state regulators in Nevada, New Jersey, Ohio, Illinois and Maryland have all issued cease and desist letters to Kalshi and others, while other states like Massachusetts and Michigan are formally investigating the industry.

The Nevada District Court has already granted a preliminary injunction that will keep Kalshi online in the state while the case is pending.

Regulators have argued in court filings that the Commodity Exchange Act of 1936 that created the CFTC was never intended to supersede local gambling laws. New Jersey Attorney General Matthew Platkin also went so far as to argue that a sports-related event contract does not meet the CFTC definition of a “swap” (a type of financial contract) because the sporting event’s outcome does not have an economic impact.

CFTC nominee is pro-sports contracts

One person who does not agree with that opinion is Quintenz. The nominee formerly worked for the CFTC and currently sits on the Kalshi board. In a dissenting opinion from 2021, Quintenz disagreed with his fellow commmissioners about the validity of NFL-related sports contracts.

He argued that, with the repeal of the Professional and Amateur Sprots Protection Act (PASPA), and the ensuing regulation of sports betting in most U.S. states, sporting events actually do have an economic impact, as the outcome has bearing on the bottom line of legal US sportsbooks.

For example, this year’s NCAA Men’s Basketball Championship tournament featured a number of higher-seeded teams winning throughout March Madness. As a result, several sportsbook companies are expecting to miss Q1 targets. A similar situation took place in Q4 after a number of consumer-friendly outcomes impacted NFL hold across the industry.

The CFTC roundtable will likely be a robust discussion with no immediate decisions on the standing of sports contracts. A number of tribal groups, regulators and operators have submitted comment to the CFTC challenging these contracts and plan to attend the event.

In the meantime, the growing list of lawsuits between Kalshi and regulators continue to move forward.