Kalshi sues Ohio regulator as states escalate prediction markets crackdown
Kalshi is suing the Ohio Casino Control Commission after regulators issued a cease-and-desist order, intensifying the national fight over whether prediction markets count as illegal sports betting.
As gambling industry professionals at the Global Gaming Expo took aim at prediction markets this week, event contract platform Kalshi took another step in fighting back against state gaming regulators.
Kalshi filed a lawsuit against the Ohio Casino Control Commission and the Ohio Attorney General’s Office in the US District Court for the Southern District of Ohio Eastern Division this week. The OCCC issued a cease-and-desist order against Kalshi in the spring and later warned sportsbooks against offering event contract products in August. In June, Ohio Attorney General Dave Yost was among 34 attorneys general who filed briefs in support of New Jersey’s efforts to regulate prediction markets.
The Ohio case joins a growing list of federal and state lawsuits testing whether sports event contracts constitute illegal sports betting or circumvent state laws.
In the lawsuit, Kalshi asked for a preliminary injunction to prevent Ohio from enforcing its gaming laws on the platform. As in the other lawsuits, Kalshi argues it is federally regulated by the Commodity Futures Trading Commission, which allows it to operate nationwide above state gambling laws.
“Ohio’s attempt to regulate Kalshi intrudes upon the federal regulatory framework that Congress established for regulating derivatives on designated exchanges,” the suit argues. “The state’s efforts to regulate Kalshi are both field-preempted and conflict preempted. This court should therefore issue both a preliminary and a permanent injunction, as well as declaratory relief.”
Industry talks prediction markets
Prediction markets were a main discussion point during the annual G2E conference in Las Vegas this week, including during educational panels on sweepstakes casinos, how regulators are cracking down on illegal and offshore operators, and a panel titled, “Unpredictable: How the Emergence of Event Contracts Challenges the Paradigm of Regulated Gaming.”
During that panel, Kevin King, partner at Covington & Burling LLP, said the lawsuits are an issue of three Ps: preemption, procedure and patience. Currently, the main issue is whether federal law governing the futures market preempts state and tribal authority over sports event contracts. The prediction market operators contend that’s the case, while multiple states and the American Gaming Association, for which King signed a supporting brief, argue otherwise.
King described the more-than-a-dozen lawsuits in progress and said it is probably “the first quarter” of action in those cases. Kalshi has secured initial injunctions to prevent regulatory enforcement in New Jersey and Nevada. Meanwhile, a Maryland judge denied Kalshi’s request for a preliminary injunction. Despite granting Kalshi its initial injunction, a Nevada judge recently denied an injunction for Crypto.com.
Dustin Gouker, owner of Closing Line Consulting, told the G2E audience that while common sense would suggest Congress did not mean for sports betting to be legal in 50 states, sports event markets on platforms like Kalshi could ultimately be legal sports betting based on future decisions as cases make their way through the court system.
“That’s what we’re really going to spend the next two or three years of being in court finding out,” he said.
States continue turning up heat
Gouker said that while regulators and legislators are taking action, perhaps they should do more on a proactive basis. He pointed to a letter sent by Kevin O’Toole, the executive director of the Pennsylvania Gaming Control Board, to Pennsylvania’s two US senators and 17 US representatives raising concerns about sports betting through prediction market platforms.
“Sports prediction markets operate under the assertion that they are financial derivatives, or swaps, and therefore claim to not be gambling under state law,” O’Toole wrote. “These markets effectively create a backdoor to legalised sports betting, operating parallel to, but outside of, the state-regulated system and without strict oversight.”
Gouker also mentioned more actions should be taken beyond those by regulatory agencies, like the lawsuit filed against Kalshi by Massachusetts Attorney General Andrea Campbell.
Still, state regulators continue to put pressure on the prediction market industry. This year, beyond Ohio, multiple gaming regulatory agencies – including those in Michigan and Arizona – have issued warnings to sportsbooks against including prediction markets among their product suites. Those warnings came as sportsbook operators such as FanDuel and Underdog announced their intentions to launch event contract products.
“When we look at it, prediction markets are ignoring state policy. There’s a myriad of different protections in place and our state laws,” Arizona Department of Gaming Director Jackie Johnson said on the G2E panel. “We have this comprehensive framework of how gaming works in Arizona, prediction markets are essentially ignoring it.
“We’re looking at consumer protection, protecting the integrity of our current market, and you can’t just sit on the sidelines and allow it.”
Congress gets involved in prediction markets
The PGCB’s letter is not the first time federal lawmakers have been involved in concerns about prediction markets.
A group of US senators, led by Catherine Cortez Masto of Nevada and John Curtis of Utah, sent a letter to the CFTC objecting that state laws are being overstepped.
“We have laws on the books right now that the CFTC needs to enforce,” Cortez Masto said in an interview with The New York Times earlier this month. “Using event contracts that facilitate sports betting illegally circumvents the authority of state and local governments like Nevada.”
Under President Joe Biden’s administration, the CFTC commissioners worked to stop prediction markets from accepting money on elections and last year proposed a rule to ban sports event contracts. A federal court overturned the CFTC’s order to stop Kalshi’s election contracts in October, and the platform took more than $700 million in contracts during the 2024 presidential election.
Since President Donald Trump took office, four CFTC commissioners have stepped down, leaving acting Chairwoman Caroline Pham as the only commissioner. Trump initially nominated Brian Quintenz as CFTC chairman but pulled the nomination this month.
In January, Kalshi named Donald Trump Jr as a strategic adviser, and it began offering sports event contracts shortly after.
Last month former CFTC commissioner Kristin Johnson, meanwhile, warned in a farewell address about the risk of having “too few guardrails” on the prediction market industry.
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