Growing Number of Gaming Industry Stakeholders Decrying Derivatives Trading Platforms Like Kalshi

Futures trading platforms like Kalshi, Robinhood and Crypto.com have been stealing headlines in the gaming world for all the wrong reasons. Thus, an increasing number of state regulatory agencies and sports betting industry trade groups are becoming more vocal about their opposition to these platforms offering contracts on sporting events.

Murky Legal Waters

Every state that has passed a sports betting bill has an agency tasked with overseeing and licensing those sportsbooks. Furthermore, any entity not licensed by a state gaming commission is legally prohibited from offering sports bets either as a mobile or retail sportsbook.

Therefore, it rankled more than a few gaming regulators and industry stakeholders when derivatives trading platforms, known for offering futures contracts on gold, silver and other commodities, stepped into the world of sports betting contracts.

Platforms like Kalshi claim they are regulated by the Commodity Futures Trading Commission at the federal level and are not subject to state agency approval. After receiving several cease-and-desist orders from gaming agencies in Illinois, Montana, Nevada, New Jersey and Ohio, Kalshi took its case to federal court.

Kalshi wrote in its lawsuit, “Nevada’s attempt to regulate Kalshi intrudes upon the federal regulatory framework that Congress established for regulating futures derivatives on designated exchanges.”

Judge Sides With Kalshi

The Nevada Gaming Control Board countered in its legal writ, “If an entity, such as Kalshi, directly makes use of Nevada gaming, i.e., sports pools, in its business model without possessing a gaming license, a big hole is created in Nevada’s regulatory structure. Nevada’s legislature has carefully crafted the law in this state to ensure that every aspect of gaming-related activity is regulated and conducted with integrity and consumer protections.”

The pivotal legal first round was adjudicated by Chief Judge Andrew Gordon of the U.S. District Court for the District of Nevada, who granted Kalshi’s request for a temporary restraining order and preliminary injunction against state gaming regulators.

However, this is merely the beginning of what will likely be more legal proceedings that could also include the federal agency that oversees trading platforms, the Commodity Futures Trading Commission (CFTC).

Tennessee Joins Chorus of Trading Platform Detractors

Although not all regulators have sent out cease-and-desist orders, others, like the Tennessee Sports Wagering Council (SWC), have written to the CFTC asking the federal agency that oversees the trading platforms to intervene.

“We believe that these sports event contracts are Wagers under the Act and are being offered in violation of Tennessee law and regulations,” wrote SWC Executive Director Mary Beth Thomas. “The sports event contracts give consumers the option to purchase contracts corresponding to one of two outcomes of an event. In a sporting event context, a consumer is purchasing a contract that reflects which team they believe will win or lose the matchup. The ultimate result is money being won or lost based on the outcome of a game.”

And the last sentence gets to the heart of the matter. Although trading platforms offer peer-to-peer contracts that can be bought at various prices depending on the score of the game or event, while sportsbooks hold the wagers at odds that do not fluctuate once the bet has been made, the outcome of the event determines the success or failure of each, whether it is a contract or a sports bet.

It is not only gaming regulators that are voicing their displeasure, but industry trade groups as well. Mark Giannantonio, the president of the casino industry trade group and CEO of Resorts Casino Hotel in Atlantic City, wrote to the CFTC recently, stating:

“As the trade association that represents New Jersey’s gaming industry, we are deeply concerned about the availability of sports events contracts, the economic impact it will have on New Jersey, and the consumer harm that may come to our citizens due to the lack of protections that the legal gaming industry is required to adhere to through state law.”