Kalshi Hit by Washington, Baltimore in Latest Legal Threats

Kalshi is feeling the heat this summer, with Baltimore and Washington State both coming down hard on the prediction market platform.

Baltimore is the latest state to sue Kalshi, and its rival Polymarket, over “illegal” sports betting.

Baltimore does offer regulated sports betting, but state lawmakers argue that prediction markets have strayed into illegal territory.

Meanwhile, a Washington State judge has ordered Kalshi to cease most of its operations entirely.

Prediction markets 'avoiding the oversight' of state regulation

Baltimore is following states such as Arizona, New Jersey, and Nevada this year with actions against what it says amounts to “illegal sports betting”.

Mayor Brandon M. Scott and the City Council of Baltimore filed lawsuits against both Polymarket and Kalshi for operating “unlicensed” sports betting platforms.

“These companies are running sportsbooks without licenses and betting that a new label will put them above the law,” said Scott.

"It won't. Baltimore will not let multibillion-dollar companies put profits over people and harm our communities through illegal gambling."

Online sportsbooks vs. prediction markets

The key battlegrounds (for now) over prediction markets stem from the types of trades Kalshi and others offer.

Unlike online sportsbooks, which are regulated in the U.S. state by state, prediction markets are regulated by the Commodity Futures Trading Commission (CFTC). It’s a federal body that uses the Commodity Exchange Act to oversee platforms.

While prediction markets used to service contracts on mainly financial and cultural markets, they have since expanded into sports.

Of concern to state regulators is the kinds of sports betting-style options available at prediction markets. Traders, for example, can purchase event contracts on the winner of the night’s ball game to next year’s Super Bowl champions.

Washington State puts a stop to most Kalshi contracts

Washington State has joined New York in attempting to halt the operations of the major prediction market players like Kalshi.

The state sued Kalshi in March for violating the state’s gambling legislation. King County Superior Court Judge John McHale went one further this month, accusing the site of running an illegal betting operation.

Kalshi must now prohibit access to many of its markets in Washington State. These include all of its sports, politics, culture, and science markets. However, financial markets, such as crypto price changes or shares are still on the table.

Kalshi continues to geofence states

Despite Kalshi’s objections that it is federally regulated as a derivatives platform, and not a gambling site, it continues to comply with some state orders.

The prediction market giant failed in its lawsuit against Utah last week to continue operating against the state’s strict anti-gambling rules.

The key argument was that federal contracts do not supersede state gambling laws. Kalshi has appealed to the Ninth Circuit Court of Appeals. However, as in states like New York and New Jersey, the appeal may fall on deaf ears.