The Tennessee Sports Wagering Council recently wrote a letter to the Commodity Futures Trading Commission appealing to the federal agency to prohibit derivative trading markets from operating in the Volunteer State.
Crossing the Line
Illinois, Montana, Nevada, New Jersey and Ohio have all issued cease-and-desist letters to Kalshi, a derivatives trading platform customarily used to trade commodities like pork bellies, silver, etc. The problem is that Kalshi, along with other trading platforms like Crypto.com and Robinhood, has ventured into the sports betting market, offering contracts on the outcome of sporting events.
Although they are not taking wagers like a traditional sportsbook, merely offering contracts that others can buy at a fluctuating price, they are ultimately competing for the same customer dollars as state-licensed sports betting sites. That is the crux of the matter, and the Tennessee Sports Wagering Council (SWC) has now taken the matter to the federal agency that oversees trading platforms, the Commodity Futures Trading Commission (CFTC).
SWC Executive Director Mary Beth Thomas argues that only licensed sports betting providers can operate in Tennessee, and trading platforms like Kalshi are not among them. She contends they are crossing state lines and are essentially taking sports bets without authority.
“We believe that these sports event contracts are Wagers under the Act and are being offered in violation of Tennessee law and regulations,” wrote 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.”
Thomas also appealed directly to the platforms themselves, writing, “As the (CFTC) reviews these sports events contracts, we ask that you respect the policy decisions made by the Tennessee Legislature and not permit the offering of sports events contracts.”
Kalshi Fights Back
Manhattan-based Kalshi is not rolling over for state regulators seeking to prohibit it from offering sports events contracts in their jurisdictions. Judge Andrew Gordon of the U.S. District Court for the District of Nevada partially granted Kalshi’s request for a temporary restraining order and preliminary injunction against state gaming regulators, like the Nevada Gaming Control Board (NGCB), that have issued cease-and-desist orders.
The NGCB argued, “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.”
However, Kalshi fired back a response that apparently resonated with the judge, stating 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.”
Although Kalshi may have won the battle and will continue to operate unfettered in Nevada, the war has not yet been decided. Tribal gaming groups, as well as regulators in several states, are inundating the CFTC with requests to prohibit the derivatives trading platforms from operating in the sports betting sphere.
The CFTC stated it would schedule a roundtable discussion in March, but that never materialized. Eventually, the federal agency will have to decide, but if it does not side with the trading platforms, it will likely lead to litigation between the trading platforms and the agency that governs them.
