The Nevada Gaming Control Board has fired its first salvo at prediction market trading platforms, with the opening volley aimed at one of the most popular, Manhattan-based Kalshi.
Not Licensed, Not Welcome
Much has been made of the derivatives trading platforms that have recently entered the murky waters of offering contracts on elections and sporting events. Kalshi is one of the industry leaders and has fought a legal battle against the regulatory body that governs its industry, the Commodity Futures Trading Commission (CFTC).
Kalshi began accepting “bets” on the recent presidential election but was cautioned by the CFTC against doing so. The parties eventually went to court, where the CFTC won the first round, but Kalshi prevailed at the appellate level. Kalshi then began offering Super Bowl contracts, and that caught the attention of state gaming commissions, especially the one in Nevada.
How Kalshi Operates
Kalshi circumvents traditional laws by offering contracts that are peer-to-peer models in which the odds are dynamic, much like a stock price, and are eventually settled when the event is concluded. Kalshi will take a fee for its trouble, but the money on the contract is won and lost between the two parties.
Conversely, sportsbooks assume all the risk, and the odds are not dynamic but are locked in once a bet is made. Those are the two major differences between a prediction market platform and a sportsbook.
Nevada’s Response
Yet, any money taken out of the sports betting market is bad news for mobile and retail sportsbooks. Thus, it is not surprising that the Nevada Gaming Control Board recently submitted a cease-and-desist letter stating:
“Every sports pool in Nevada must undergo an extensive investigation prior to licensing, must adhere to strict regulation once licensed, and must pay all applicable taxes and fees,” NGCB Chairman Kirk Hendrick said in a statement. “Any unlawful attempts to circumvent Nevada’s right to regulate gaming activity within its borders will be met with the full force of criminal and civil penalties.”
The order also stated that any prior violations are subject to criminal and civil penalties, while adding, “Future unlawful activity will be deemed willful violations.”
Kalshi, which offers event contracts in over 35 states, had until March 14th to stop accepting Nevada customers.
Winds of Fortune Blowing for Kalshi
As much as they may seem similar, there is enough of a legal difference to allow Kalshi and other prediction markets like it to operate with impunity, at least for now. Yet, in a fortunate twist for Kalshi, the faces on the Commodity Futures Trading Commission are changing with the inception of the new administration. These new members are likely to be friendlier to firms like Kalshi, considering the president’s son, Donald Trump Jr., has joined Kalshi as a strategic advisor.
Donald Trump Jr. posted on X after joining the firm:
“On election night at Mar-a-Lago, while biased outlets called the race a coin toss, my family and close friends used the prediction market @Kalshi to know we won hours ahead of the fake news media.
“I immediately knew I had to contribute to their mission. Today, I am proud to announce that I am joining Kalshi as a strategic advisor.
The Kalshi team has worked hard, sued the Biden administration, and achieved the impossible feat of becoming the first legal prediction market in the US. I’m excited to be a part of what they’re building.”
