Published on: September 15, 2025, 08:16h.
Updated on: September 15, 2025, 08:16h.
- Legal authority suggests Congressional action or a Supreme Court ruling may be necessary to clarify the complexities surrounding prediction markets.
- An alternative approach is uniform regulations issued by individual states.
- Clear guidelines could benefit gaming entities over binary betting platforms.
Addressing the various legal disputes tied to prediction markets might require Congressional intervention, Supreme Court decisions, or consistent state-based regulations.
Daniel Wallach, a well-known authority on sports betting law and the founder of Wallach Legal, LLC, shared these insights during a recent call with Jefferies analysts David Katz and James Wheatcroft. Key discussion points included Kalshi’s ongoing legal challenges at the state level and potential resolutions.
According to Wallach, the primary legal question surrounding Prediction Markets revolves around Congress’s intent while establishing the Commodities Futures Trading Commission (CFTC) and the Commodity Exchange Act (CEA), especially in defining what constitutes a swap,” noted Katz in his evening report. “The CEA describes a swap as having ‘potential commercial economic consequence’, which, under a wide interpretation, could encompass sports events, thereby benefiting Kalshi.”
Kalshi, along with other prediction market operators, is overseen federally by the CFTC. Some critics claim that Kalshi is taking advantage of a legal loophole to offer yes/no betting contracts on sports events, essentially treating them as wagers across all states. Conversely, Kalshi defends its model by asserting that it is not a sportsbook and that federal preemption allows it to offer these derivatives nationwide.
Resolution May Take Time; Current Uncertainty Favors Kalshi
For gaming companies like DraftKings (NASDAQ: DKNG) and FanDuel’s parent company Flutter Entertainment (NYSE: FLUT), clarity on the issue — ideally via Congressional legislation defining the status of sports contracts as either swaps or not — would be beneficial. Additionally, the relevant case making its way to the Supreme Court or consistent rulings issued by states could provide further guidance.
Katz highlights that Wallach is not anticipating any of these resolutions within the coming year. This outlook seems reasonable, as cases can often take years to reach the Supreme Court, and there is currently little appetite in Congress to engage with prediction market issues.
Both DraftKings, FanDuel, and other sportsbook operators are eager to have this uncertainty cleared, as it affects their strategic planning for future developments.
“If it turns out that sports events are legalized as swaps, then DKNG and FLUT could effectively enter the market and compete with disruptors like Kalshi. Conversely, if sports events are classified as prohibited, DKNG and FLUT can continue operating under the status quo,” Katz notes.
California and Massachusetts Pose Major Challenges for Kalshi
Kalshi faces lawsuits in multiple states, but Wallach indicated on the Jefferies call that California and Massachusetts are the most significant hurdles for the prediction market operator. In Massachusetts, Kalshi is currently involved in litigation initiated by Attorney General Joy Campbell (D).
Earlier today, Massachusetts Superior Court Judge Christopher K. Barry-Smith ordered a hearing for September 22, where a decision could be made regarding Attorney General Campbell’s request for a preliminary injunction against Kalshi.
In California, Kalshi has encountered opposition from tribal gaming organizations that hold exclusive contracts with the state. These tribal casino operators have significant influence over sports betting in California, suggesting that courts may side with them should they pursue injunctions against prediction market companies.