Kalshi suffers legal blow as judge denies preliminary injunction in Connecticut

Kalshi has suffered another legal defeat after a judge in Connecticut denied the prediction market’s motion for a preliminary injunction by ruling that its sports-related event contracts are sports wagers.

In the decision, filed August 10, US district judge Vernon Oliver came to the conclusion that markets offered on Kalshi do not qualify as swaps and are not covered by the Commodity Exchange Act (CEA).

The latest blow comes after Oliver ruled in December that Kalshi was able to continue providing sports-related event contracts in the state after the Connecticut Department of Consumer Protection (DCP) sent cease-and-desist letters to the platform, as well as Crypto.com and Robinhood.

This led to Kalshi filing a preliminary injunction to remain operational in Connecticut, arguing the CEA prevents state gaming laws from being applied against prediction markets and that regulation falls under the jurisdiction of the Commodity Futures Trading Commission (CFTC).

However, the newly published 38-page document highlighted that while Kalshi makes a distinction as to why it offers contracts on the winner of a sporting event, deemed a swap, and not on an exact final score – it was “not clear” what was meaningfully different between the two “for purposes of the statutory requirement that the event have a potential financial, economic or commercial consequence.”

In the ruling, Oliver said Kalshi, which is valued at $22bn, had not presented enough evidence it would be likely to succeed in its argument that sports events contracts were swaps, or that it would suffer irreparable harm to its reputation, goodwill or status as a CFTC-designated contract market if the injunction was not granted.

Pointing to previous comments made by Kalshi in which it said its offering was “legal sports betting nationwide,” Oliver concluded that: “Kalshi characterizes its sports-related event contracts in various ways, but at bottom, they are sports wagers.

“The court declines to conclude either that these sports wagers are properly categorized as swaps and fall under the CFTC’s authority, or that Congress clearly displaced Connecticut’s traditional authority to regulate sports wagering and vested that authority in the CFTC, an agency that has not historically regulated sports wagering and has not exercised meaningful oversight over Kalshi’s sports event contracts.”

The judge also noted that it was “unclear” why Kalshi would not apply for a licence and “establish a category of Connecticut market participants that does not discriminate within the state.”

DraftKings, FanDuel and Fanatics are licensed to offer sports betting in Connecticut, through partnership with tribes in the Constitution State. Online casino launched there in 2021. 

Kalshi’s legal defeat in Connecticut follows losses in states including New York, Nevada and Washington in the last 12 months.

In Nevada, Kalshi agreed to use third-party geofencing software to prevent customers accessing the platform.

On August 7, the CFTC issued a reminder to prediction markets not to display event contract prices in the “American odds format used by casino gambling bookmakers” as it is “likely to mislead market participants about the nature of the transaction.”

The agency added: “Market participants should display information, including pricing information, that indicates to consumers when a product is an event contract on a CFTC-regulated exchange, rather than a higher-margin, non-market-priced bookmaking product.” 

In a comment sent to EGR, Kalshi said: “We respectfully disagree with the court’s decision and are considering all legal options.”