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Prediction markets have sparked controversy in New Jersey that is hurting the regulated sports betting industry, a Jefferies Equity Research analyst believes. A decision, one way or the other, is going to benefit operators.
Prediction markets have been prevalent in New Jersey since the Super Bowl. However, operators such as Kalshi and Robinhood are not subject to the NJ Division of Gaming Enforcement. They are regulated under the Commodity Futures Trading Commission (CFTC).
Kalshi won a preliminary injunction in April to continue operations after the DGE issued a cease-and-desist letter.
Any decision is better than no decision
The DGE believes that prediction markets should be under the same regulation requirements as online sportsbooks in New Jersey, which is why the state appealed the preliminary injunction ruling.
The decision remains up in the air, as of now.
Jefferies Equity Research analyst David Katz said that any decision the court rules would help sports betting operators. Complete iGaming explained Katz’s stance:
“A level playing field, he explained, favored incumbent sports betting providers over ‘disruptors’ such as Kalshi.
“The former has the infrastructure, as well as the scale of operation, needed to prevail, whether in customer cultivation, product development, or efficiency of marketing.”
The uncertainty prediction markets continue to have puts the regulated market in limbo.
Where the court is leaning
A ruling has not been set on prediction markets, and it could go either way at this point. The markets have prevailed to this point.
Katz does feel the courts are leaning towards Kalshi, since the CFTC is federally regulated, which supersedes state law. Despite favoring Kalshi, changes in market offerings could follow:
“The court appeared sympathetic to its argument that the law as written indicates that sports events could be considered commercially consequential and therefore swaps.
“However, commentary also suggests the court could put significant guardrails around what constitutes a swap, therefore limiting the scope of Kalshi’s offerings, notably on player props.”
