Kalshi Files Suit Over New Jersey, Nevada Cease-and-Desist Letters
March was a maddening month, legally speaking, for Kalshi. Now, the event contracts platform is swinging back at gaming regulatory bodies in Nevada and New Jersey.
Kalshi received cease-and-desist letters from both states in March claiming that it violated sports betting laws with its sports predictions markets, which allow users to purchase contracts that predict the results of March Madness games.
As a federally regulated exchange, Kalshi says its contracts are lawful and has responded by filing lawsuits against the Nevada Gaming Control Board and the New Jersey Department of Gaming Enforcement.
Massachusetts regulators have also launched an investigation into the exchange, and Illinois, Maryland, Montana and Ohio have sent cease-and-desist orders of their own to Kalshi. Robinhood and Crypto.com received letters, too.
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Kalshi’s Argument
Kalshi has responded to these letters by fighting fire with fire. It announced on March 26 that it filed lawsuits in Nevada and New Jersey. In disputing claims that its contracts circumvented sports betting laws, Kalshi says its contracts work differently.
Rather than wagering against the house, users predict the outcome of real-world events (in this case, a sporting event) in a “yes/no” format. They purchase a contract that must have another person buy the opposite side.
Its contracts are regulated by the Commodity Futures Trading Commission in the same way as other trading exchanges.
A similar lawsuit transpired before the 2024 election, and the DC Court of Appeals ruled in Kalshi’s favor. The ruling could be a significant factor in a future decision related to sports contracts, especially given that the contracts do not “involve gaming.”
The “gaming” definition is key here: the Commodity and Exchange Act does not have a specific definition for the term and thus refers to its ordinary meaning: “the practice of playing games” and “playing games for stakes.”
Fighting Fire With Fire
Nevada was the first to serve a C&D letter to Kalshi, which it did in early March, claiming its contracts violated state law.
New Jersey served letters to Kalshi and Robinhood on March 27, ahead of the March Madness East Regional held at Prudential Center in Newark. The two companies had initiated a partnership on March 17, with Robinhood offering contracts to its customers via Kalshi’s platform. The NJDGE argues that those contracts breached state laws regarding betting on college sporting events that take place in New Jersey.
Robinhood complied with the letter in New Jersey and announced it would no longer offer contracts to customers in the state. Kalshi, however, is seeking a court order to allow it to continue with sports prediction contracts in the two states.
“We have been targeted before, we have fought before, and we have won before. This time will be no different,” said Kalshi CEO Tarek Mansour. “The threatened actions in Nevada and New Jersey seek to undermine not just Kalshi’s contracts, but the authority granted by Congress to the Commodity Futures Trading Commission, which has safely and effectively governed commodities markets for decades.”
Ohio Response Expected By Mid-April
The Ohio Casino Control Commission served cease-and-desists to Kalshi, Robinhood and Crypto.com on March 31. The letters gave the three companies until April 14 to respond.
An OCCC press release stated that “The Commission determined the event contracts offered by the companies on sporting events meet the definition of sports gaming under the law, which requires licensure to be legally offered in Ohio.”
OCCC Executive Director Matthew Schuler added the following:
“Purchasing a contract based on which team a person thinks will win a sporting event is no different than placing a bet through a traditional sportsbook. The only difference is that these event contracts do not have the consumer protections required under Ohio law and are accessible to Ohioans under 21 years of age. The Commission must take action to fulfill its statutory responsibilities and ensure the integrity of sports gaming in Ohio.”
Based on Kalshi’s actions against New Jersey and Nevada, it could take a similar course in the Buckeye State.
Could Others Follow?
Legal sports betting has taken root in many US markets, and states have begun clamping down on gray- and black-market competitors now that their footing is underneath them.
Numerous states took action against unregulated offshore and sweeps coins sportsbooks within the past year, and they are aggressively pursuing new perceived loopholes in event contracts.
An apparent domino effect is beginning to form, and additional states could follow until (or unless) the issue is decided at a federal level. The courts have already sided with Kalshi once, but this story remains a developing one.
