The predictions market Kalshi has elected not to comply with a cease-and-desist letter from New Jersey regulators, instead opting to sue and seek a preliminary injunction that will allow it to continue operating in the Garden State.
Predictions markets have taken the gaming industry by storm. Once a financial product allowing traders to hedge against various real-world events that would affect company bottom lines, these markets received federal approval this year to allow the trading of contracts based on sporting event outcomes. Kalshi launched its sports markets for the Super Bowl, then turned its attention to March Madness last month. It also courted controversy last year by allowing Americans to trade contracts on the federal election.
Kalshi is regulated by the Commodity Futures Trading Commission (CFTC), whose authority it says supersedes New Jersey’s. The company is arguing that the New Jersey Division of Gaming Enforcement (DGE) and Casino Control Commission are exceeding their jurisdiction by seeking to override a federal agency. The complaint reads:
“Two New Jersey agencies—the New Jersey Division of Gaming Enforcement and the New Jersey Casino Control Commission—are threatening to intrude on the comprehensive federal scheme for regulating designated exchanges.
“Kalshi is a federally–designated and approved derivatives exchange, subject to the CFTC’s exclusive jurisdiction. It offers consumers the chance to invest in many types of event contracts, including, as relevant here, sports–outcome contracts.
“These contracts are subject to extensive oversight by the CFTC, and—critically—they are lawful under federal law. Two months ago, the CFTC allowed Kalshi’s sports–outcome contracts to take effect without review.”
Kalshi is suing DGE and Casino Control Commission
In addition to seeking a preliminary injunction, Kalshi is filing a lawsuit against the following individuals and entities:
- Mary Jo Flaherty: Interim Director of the NJ DGE
- New Jersey Division of Gaming Enforcement
- James T. Plousis: Chairman of the New Jersey Casino Control Commission
- Alisa Cooper: Vice Chair of the New Jersey Casino Control Commission
- Joyce Mollineux: Commissioner of the New Jersey Casino Control Commission
- New Jersey Casino Control Commission
- Matthew J. Platkin: Attorney General of New Jersey
The NJ DGE ordered Kalshi, along with Robinhood, to shut down operations immediately last week. It’s is arguing that “irreparable harm” to the company and customers.
The ban would also “undermine confidence in the integrity of Kalshi’s platform” as it relates to customers.
Predictions market explained by Kalshi
In the complaint, Kalshi explains what it offers, which is best described as predictions markets. The company used the following example in the document:
“For example, a derivatives contract might center around whether an earthquake will take place in Los Angeles County before December 31, 2025. A purchaser may trade on either the ‘yes’ or the ‘no’ position on the Los Angeles earthquake contract.
“If an earthquake does take place in Los Angeles County before the end of the calendar year, then the ‘yes’ positions would be paid out.”
The contracts are traded on an exchange, which does not constitute as a “bet” against the “house.” The value of the event contract is determined by market forces, and can change until the expiration date. Customers also have the option to trade out of the position before the expiration date.
Kalshi has taken those markets to include sports outcomes, too. The NJ DGE has viewed them as “listing unauthorized sports wagers,” the cease-and-desist letter read.
The NJ DGE requires operators to obtain a license to offer sports wagering in the Garden State. Kalshi is arguing that it doesn’t need one, because it is federally legal under the CFTC.
Ohio and Nevada have taken similar action as New Jersey, also issuing cease-and-desist letters to Kalshi. The legal process will have to play out before it all gets sorted out.
