The Closing Bell: Massachusetts Attorney General Sues Kalshi
Prediction markets roundup: Kalshi hits $500 million in trading over the past week; report mentions potential $9B valuation for Polymarket.
The Massachusetts Attorney General sued prediction market Kalshi on Friday for offering sports betting without a license in the commonwealth. The commonwealth also asked for a preliminary injunction against Kalshi in Suffolk County Superior Court.
Seven states have sent cease-and-desist letters to Kalshi so far, but Massachusetts was not one of them. Kalshi has sued three of them — Nevada, New Jersey and Maryland — to stop enforcement of the C&Ds.
“Massachusetts' lawsuit is significant for two reasons: It's the first time that a state has gone on offense in court to enforce its gaming laws, and it's in state court (which may be less receptive to federal defenses like the preemption argument that Kalshi's raised),” attorney Andrew Kim of Goodwin Law told The Event Horizon. “It'll be interesting to see whether other state regulators will follow suit in coming off the sidelines.”
Update: The AG has also put out a press release you can see here.
From the complaint:
Kalshi is violating the Commonwealth's strict sports wagering laws and regulations by offering unlicensed sports wagering to Massachusetts residents.
Kalshi disguises its sports wagering offerings as "event contracts" offered on a "prediction market."
Kalshi's wagers allow a bet on whether a sports-related occurrence will happen. The bettor wins money if they guess correctly and forfeits the wagered cash if they guess incorrectly.
The types of "events" for which Kalshi offers contracts range from elections, pop culture, weather, and—most pertinent here—professional and collegiate sporting events.
Full complaint here:
The complaint delves at length into how Kalshi acts like a gambling platform and that it is not meeting state standards for responsible gambling. Excerpts from the complaint:
PayNearMe has developed the gaming industry’s first platform that is purpose-built to dramatically improve the end-to-end payment experience. It enables operators to manage the entire payment journey, for all major forms of payment and through the most popular channels. With PayNearMe, operators gain full control of the payment flow, promoting acquisition, retention and efficiency. One platform, one integration—built to solve gaming’s toughest payments problems.
This week at The Event Horizon and The Closing Line
ICYMI; if you read all of this, skip to the roundup!
Everything DraftKings' CEO Just Said About Prediction Markets
Attorney Andrew Kim will have a deep dive about oral arguments in Kalshi vs. New Jersey that I will publish this weekend. He tells me he has a day job. Lame.
The roundup
New frothy valuations for prediction markets. Paywalled, but the headline tells us a lot: Prediction Startup Polymarket Fields Offer for $9 Billion Valuation; Kalshi Nears $5 Billion Financing
I already linked this earlier this week, but you need to read it if you haven’t already:
Kalshi trading volume update: In the trailing seven days, Kalshi has seen $555 million traded. Some insights:
88% of all trading came on sports.
Almost half of that came on NFL game winners. More than $40 million was traded on the Minnesota Vikings-Chicago Bears game.
College football was about 20% of all trading. Trading on most individual NFL games was bigger than even the most-traded college game.
Economic markets were about 10% of all volume.
THESE ARE NOT APPLES TO APPLES but for what it’s worth, New York sportsbooks in total have been doing about the same amount in handle in recent weeks.
Here were the top 20 markets in the trailing seven:
Kalshi sports betting UI gone?: I wrote earlier this week in the roundup that Kalshi had launched a UI that looks like what you would get at a sportsbook, the famed “6 box.” But it’s now gone, and it’s not clear why:
One school of thought is that it was showing the vig that a retail bettor would pay, which right now is generally higher than what you see at state-regulated sportsbook for football games. Or maybe the 6 box made it look too much like a sportsbook. In any event, it’s gone for now. We’ll see if it returns. The UI/UX is still pretty terrible at Kalshi in trying to cater to a retail sports bettor. The 6 box had been an improvement on that front.
Financial Times deep dive on prediction markets (paywall): This is a pretty top-level view of the industry, a good-read if you are playing catch-up on all of this, but if you’re reading this newsletter, it might be a bit too general. A few nuggets that stood out:
“Since January, three of five CFTC commissioners have resigned, with a fourth planning to leave the agency in the near future. ‘That agency is in shambles,’ says Democratic congresswoman Dina Titus, whose Nevada district includes the gambling mecca of Las Vegas. ‘There’s really no oversight at all.’
“Because of tribal gaming, we have the revenue to take this claim up to the Supreme Court if we have to,” says Rocha of the IGA. “You get the justice you can afford in this country, and $50bn allows us to buy a lot of justice.”
Who’s going to lead the CFTC?: We really need a prediction market on this, because it seems like no one has any idea. The latest in the drama around Brian Quintenz, the nominee to lead the Commodity Futures Trading Commission, was him posting a bunch of Signal messages between him and the Winklevoss twins, of cryptocurrency fame. It’s pretty clear that this was done in an attempt to break the logjam on his confirmation, which has been in limbo for weeks.
But in the current meta of US politics, it’s not clear that Quintenz outing attempted influence peddling by the Winklevosses is going to move the needle. Quintenz’s posts on X/Twitter came just as the Winklevoss’ company, Gemini, did its IPO.
What is clear is that the current environment is just fine for the nascent prediction markets industry. Whether it’s Quintenz, or Acting Chair Caroline Pham, or a chairman to be named later, it doesn’t seem like it matters much in the macro. It’s full steam ahead.
This Substack is brand new but is already a must-read:
The author also appeared on the Eilers & Krejcik podcast to talk prediction markets.
And another interesting read from a sports bettor on prediction markets:
Sportsball: I am doubtful Kalshi is going to be the company that wins sports betting in the US long-term, until they start hiring people who know sports and betting on sports. Kalshi is a sports betting exchange being led and mainly populated people from other worlds. They seem to revel in the fact that they don’t know sports:
Fox + NFL + Kalshi: The start of the post above is about Kalshi’s deal with a new program on NFL on Fox called Rearview, which is a podcast hosted by former quarterback Mark Sanchez (which I did touch on yesterday). But let’s pull on the thread a bit more.
The NFL has said of prediction markets that “Our view is that these platforms mimic sports betting, and that they are covered as prohibited conduct under our policy.” Yet here we have a player — Los Angeles Chargers quarterback Justin Herbert — taking part in an interview where Kalshi is the sponsor. And talking about betting on who will perform at the Super Bowl. Does it break any actual rules? Who knows/probably not. But it feels like it’s very close to a line the NFL shouldn’t want players to cross. Meanwhile, Kalshi is constantly using player images to promote the sports betting product, seemingly wihout the blessing of the players’ association.
It’s even a little wilder when you consider that this is happening via Fox, an NFL broadcast partner. This integration is pretty minimal, via a podcast. It starts getting interesting if it expands beyond that…odds on pregame shows? Other social activations via Fox? Stay tuned, I suppose.
I was on a webcast with KPMG talking about prediction markets this week. You can watch the replay here.
Is the "font color is green and means safe" argument have any legal precedent? It just seems like a dumb argument, but idk the history of gambling regulation.
The other part that stood out is Kalshi pricing is based on $1 units, not $100. Getting this simple fact wrong makes me wonder what other mistakes are lurking.