The Massachusetts Supreme Judicial Court expressed doubts regarding Kalshi, the operator of prediction markets, during the oral proceedings on Monday. The court is contemplating whether the company can provide contracts for sporting events in the state, a ruling that could significantly influence a nationwide dispute over the regulation of such platforms.
The core of the disagreement is whether Kalshi’s contracts are under the jurisdiction of federal authorities, particularly the Commodity Futures Trading Commission, or if they fall subject to state gambling regulations. Kalshi maintains that its products are derivatives, or “swaps,” governed by the Dodd-Frank Act of 2010, and hence, beyond state regulatory control.
“This issue fundamentally revolves around federal regulation,” Kalshi’s attorney Grant Mainland stated in court, advocating for the reversal of a preliminary injunction that prevents the company from offering sports contracts in Massachusetts without holding a gaming license.
Several justices challenged how Kalshi’s offerings are distinguished from conventional sports betting.
Justice Gabrielle Wolohojian inquired: “How do they differ from what is commonly recognized as a bet?”
Justice Scott L. Kafker also showed skepticism, commenting: “If you’re looking to wager on a game, this serves as one method, right? It indeed seems to have a significant component of sports gambling.”
Massachusetts, which filed a lawsuit against Kalshi spearheaded by Attorney General Andrea Joy Campbell, argues that the platform is essentially conducting sports betting without a license, thus undermining the state’s authority in gambling regulation.
Assistant Attorney General Gerard Cedrone expressed in court that adopting Kalshi’s perspective “would effectively eliminate state regulation over what is fundamentally a sports bet,” cautioning that this could initiate a “dramatic shift” in the landscape of gaming regulation.
Kalshi has noted backing from the CFTC as well as a recent judgement from the U.S. Court of Appeals for the Third Circuit that supports federal oversight in a related case concerning New Jersey.
Nevertheless, the Massachusetts court highlighted concerns that Congress did not explicitly aim to eliminate states’ traditional roles in gambling regulation when enacting Dodd-Frank post the 2008 financial crisis.
This case is indicative of a broader legal dispute across the nation as prediction markets gain traction, allowing participants to speculate on various outcomes, including sports and elections. State authorities maintain that such platforms could circumvent consumer protections and age restrictions linked to licensed betting.
A preliminary injunction restricting Kalshi’s operations in Massachusetts is currently on hold pending appeal. If confirmed, the decision could bolster state power to regulate prediction markets and may pave the way for more litigation, including a potential review by the U.S. Supreme Court.
In framing the case, Campbell emphasized it as part of a broader initiative by states to close regulatory gaps. “As the federal government withdraws from consumer protection, state AGs are stepping up, as demonstrated by my office’s ongoing actions against Kalshi,” she remarked.
“We will persist in ensuring that anyone looking to provide sports betting in Massachusetts is licensed and proactively manages any risks of fraud along with the significant public health implications often tied to sports betting,” Campbell concluded.