Kalshi sues Nevada and New Jersey regulators over cease-and-desist orders

Prediction market Kalshi has stepped up its legal battle against regulators in Nevada and New Jersey by filing lawsuits following cease-and-desist orders.

Kalshi CEO Tarek Mansour described prediction markets as a “critical innovation of the 21st century” and accused the Nevada Gaming Board and New Jersey Department of Gaming Enforcement of going too far in their response.

Posting on X (formerly Twitter), 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.”

This legal challenge from Kalshi comes after Nevada and New Jersey regulators attempted to ban both Kalshi and fellow predictive market Robinhood from offering sports prediction markets in their states.

Accessible across the US — including in states where sports betting is prohibited — Kalshi introduced single-game betting markets for NCAA basketball tournaments on March 17th.

The men’s tournament brought in almost $200m (~£154.9m) worth of revenue for Kalshi in just the first two rounds, with another $12.8m (~£9.1m) from the women’s events.

Kalshi has also announced a partnership with Robinhood, which began offering sports markets for Super Bowl 59 earlier this year.

But despite this latest move from Kalshi, the New Jersey Department of Gaming Enforcement (NJDGE) has threatened further action.

Should Kalshi fail to comply with its order to leave the state, the NJDGE has stated it will use “any measures available under state law.”

However, it did agree to extend the deadline for compliance with the cease-and-desist letter to April 7th.

The argument made by Kalshi in defence of its operations is that sports-outcome contracts do not constitute gambling, and are “valid under federal law.”

“Prediction markets are a critical innovation of the 21st century and, like all innovations, they are initially misunderstood,” Mansour added.

Nevada’s order was the first state-level legal action taken against Kalshi. The Nevada Gaming Control Board (NGCB) accused Kalshi of violating multiple state laws with its offerings.

The Ohio Casino Control Commission also issued a cease-and-desist letter to Kalshi, Robinhood and Crypto.com.

In the letter, it stated: “The commission determined the event contracts offered by the companies on sporting events meet the definition of sports gaming under the law, which requires licensure to be legally offered in Ohio.”

But despite the challenges from the Ohio, Nevada and New Jersey regulators, Kalshi CEO Mansour has vowed to keep battling.

He said: “They [prediction markets] are the quintessential truth machines.

“With trust in traditional institutions at an all-time low, people are turning to prediction markets at an astronomical pace. The growth of the ecosystem in the last year is a testament to how important they have become to the American people.”

Kalshi was Launched in July 2021, and offers a platform for both retail and institutional traders to place trades on future events.

These include economic and political indicators, awards and sporting markets.

Contracts are priced based on the market’s estimated probability, with users trading based on a yes-no option.

Typically, prediction market contracts have a trade set up between 0% and 100% probability.

There have been a number of esports markets offered by Kalshi in the past.

At present, the platform is offering a market on the League of Legends World Championship.

T1 are the current market favourites with the highest probability offered, at 28%. The organisation are followed by Hanwha Life Esports (21%) and GenG (12%.)