Prediction market trading platforms like Kalshi have made headlines over recent months by offering sports betting events trading, and Michigan gaming industry regulators have confirmed an investigation into those companies.
Blurred Lines
New York-based financial exchange and prediction market trading company Kalshi has sent the industry abuzz by entering the sports betting realm via its prediction markets. The controversy began during the last election cycle when it allowed customers to trade on the predicted results of the presidential race but later included sports events contracts.
A Loophole in Regulation?
This has caused stakeholders in the sports betting industry to cry foul as the prediction markets are not governed by the same rules stipulated by the state regulatory bodies that license those sportsbooks. Kalshi and others like it claim they are a prediction market and offer contracts with dynamic pricing rather than sportsbooks that offer odds and point spreads that are locked in at the time of the wager.
Several agencies, including the one that governs the commodities market, the Commodity Futures Trading Commission (CFTC), have taken issue with prediction markets, and the CFTC has been to court because of it but lost the most recent ruling that has allowed Kalshi to continue in the sports events trading market.
State Regulators Begin Investigations
Kalshi offered Super Bowl contracts nationwide and continues to operate in the sports events trading sector, but the Michigan Gaming Control Board has announced it has launched an investigation into sports prediction markets offered by unlicensed Michigan sports betting trading platforms.
“The Michigan Gaming Control Board currently has investigations open regarding sports prediction markets offered in Michigan by unlicensed entities,” the MGCB spokesperson said. “These investigations aim to address concerns about consumer protection and ensure that residents of Michigan are safeguarded against potential risks posed by unregulated operators. The MGCB has not issued cease-and-desist letters to such entities at this time.”
No cease-and-desist orders have been issued at this time.
Kalshi Fights Back
Both the Nevada Gaming Board and New Jersey Department of Gaming Enforcement have gone one step further than the Michigan Gaming Control Board and have issued cease-and-desist orders to Kalshi, cautioning it against offering sports event trading contracts in their respective markets. New Jersey and Michigan both have robust mobile sports betting industries, from which the state makes tens of millions in taxes from its licensees that operate in their respective markets.
However, Kalshi CEO Tarek Mansour has stated that prediction markets are a “critical innovation of the 21st century” and have every right to operate in markets across the nation despite not being licensed by the corresponding regulatory agencies. He has vowed to sue.
Posting on X, Mansour said, “Both states have issued cease and desist orders that fundamentally misunderstand prediction markets and undermine the foundation of U.S. financial markets, which are regulated by the federal government.
“We have made every effort to engage proactively with both Nevada and New Jersey and try to educate them about prediction markets, how they are regulated, and how critical they are … but our words fell on deaf ears.
“I can’t speak to why they are taking this action, but prediction markets have proven their use, so it is a shame that these authorities are still trying to censor them.
“We are left with no choice: sue.”
