Kalshi claims that it’s exempt from state gambling laws. Three circuits have divided on that question, and the Supreme Court will soon have to step in.
Thanks for yet another great post. I understand why Kalshi wants uniformity, but the seeming nexus between federal oversight and a "hiding in plain sight" CFTC will end someday (and, I hope, in about 26 months.) Hard it is not to be amused by the fact that Trump and his followers don't seem to grasp the concept that nothing lasts forever. P.S. I was a regular PredictIt user. I loved the site and never worried about it being used for nefarious purposes. Now? I wouldn't give Kalshi 10 cents.
Above the fold, you write "Today’s “Long Read” tries to provide a concise and accessible overview of what, exactly, Kalshi is doing that’s different from other betting apps;" I did not see though any differentiation below the fold of that anticipated differentiation. Why is everyone picking on Kalshi when Polymarket and others also allow sports betting?
The differentiation is between Kalshi (and its immediate competitors) versus traditional sportsbooks like MGM or Caesar's.
As for why Kalshi has become the avatar of the prediction industry's regulatory battles--they expressly chose that role by pro-actively suing states and petitioning the CFTC for rulemaking, whereas Polymarket et al. were happier to fly under the radar and litigate reactively.
Polymarket's primary exchange is not allowed to accept bets from US persons due to a 2022 CFTC enforcement action that Polymarket settled.
Really the distinction is between the CFTC-registered DCMs (Kalshi is the largest but not the only) versus state-licensed sports books. Polymarket is effectively in regulatory no-mans land for now.
Onion and box office receipts swaps are fine, just not futures (13-1 only catches “contracts for sale…for future delivery,”which is the dumb term of art for futures). Swaps weren’t invented until several decades after the futures ban.
I am glad my extremely niche practice area was useful for something today.
As a retired bankruptcy attorney, it seems obvious to me that the automatic stay blocks the liquidation and ultimately the collection of claims through arbitration proceedings. But I don’t have a prediction about the outcome because the Court’s understanding of bankruptcy is weak at best. As for Kalshi, it is beyond obvious that this matter, however it comes out, should be resolved by legislation, not adjudication. I don’t want the CFTC or a federal agency under the thumb of a corrupt unitary executive in charge.
The communications too, that were the heart of the original filing that led to the arbitration claim as well. I think that is important to consider as well. Trying to get them to "self-deport" their savings to Goldman Sachs despite a bankruptcy filing is, at best, edgy behavior. At worst, it's harassment of someone who falls under a court's protection.
I hope there are regulations on “prediction markets” soon! It’s one more way for businesses to take advantage of (usually poorer) people. I’ll never forget Florida promoting starting the state lottery, which they sold as something to help education — while never mentioning it wasn’t meant to be a net increase; when it passed, they cut traditional funding, leaving no appreciable benefits, all while taking advantage of those who could least afford the money and those with compulsion problems (or both) — and arguably, those whose education was insufficient to let them understand they were being exploited.
Regarding the low volume this term, "No matter whether th' constitution follows th' flag or not, th' supreme coort follows th' iliction returns." Finley Peter Dunne. I imagine C.J. Johnny is at his desk, behind a closed door (natch!) muttering, "Ignore the six of us, ignore the six of us" like a mantra as he works.
On Kalshi, were am I wrong: My sportsbook is legal if I take 1 bet out of a million placed bets on an election outcome, or something random that's not sports?
Also, giving the CFTC that authority out of nowhere sounds like a "major question" that needs briefing from John Jay's papers on the matter. I expect Alito and Thomas will be all over that [intended].
I am interested in Rhea, though, since how far the automatic stay extends, whether Frank-Dodd modified the stay's reach by intent/implied intent (or whether, I think, Goldman Sachs is reaching), and fine print in an adhesion contract can override bankruptcy courts.
This feels like a good place to ask, since some of the controversy is about congressional intent and purpose.
What role would a statement of intent have if it was part of the original law? I.e., could Congress just explicitly have a section that said “we are aiming to achieve X and Y but not Z?”
Steve, congrats on the second book. I look forward to reading it.
To me, a proper resolution of the “mess” runs through a distinction that Justice Alito’s line in Murphy (“Congress can regulate sports gambling directly”) tends to collapse. One question is whether Congress gave the federal government authority over event contracts. Another is whether particular contracts are permissible. Those are separate inquiries. They ask what Congress intended in different respects and turn on separate provisions, some inside the CEA and some outside it.
I’d hoped the Court would get to consider both questions together. One possible answer is that the CEA preempts state gambling laws as applied to these contracts, but the contracts still can’t be listed under federal law. The pending petitions ask the Court to decide preemption, so a ruling could settle who gets to regulate these contracts and still leave open whether they can be listed at all.
The claim that nobody read the statute this way until prediction markets came along is factually incorrect. Gensler, of all people, should know that claims that start with “nobody” are dangerous territory. It only takes one counterexample.
I’m one. In an amicus brief I authored in Murphy, I urged the Court to look beyond PASPA and consider the CEA, and argued that futures contracts based on sports performance fell within the scope of federal commodity futures regulation. That wasn’t even my first attempt to get the Court’s attention. In 2013, I authored a cert petition asking whether sports performance was an excluded commodity under the Commodity Exchange Act and warning of a “litigation jam” if the issue went unresolved. I was making these arguments well before prediction markets and the CFTC took them up. But you know this much better than I do: The Court often rules narrowly, generally works within the questions presented, and is less likely to take a case when the commercial stakes are modest.
And there are other counterexamples. Scholars were asking whether sports could be an excluded commodity 20 years ago. The CFTC itself was grappling with the issue as early as 2004, when it designated a contract market but drew a boundary around sports. I take the argument against preemption seriously, even though I disagree with it. The historical claim that nobody was thinking about this, which has now made its way into appellate opinions, is a separate matter. The record shows otherwise.
On that note, if state law gave way to federal law here, I don’t see how 2010 is the turning point. If it happened, it happened in 2000. Dodd-Frank’s swap definition is central to the current litigation, but the question of what Congress intended goes back further.
The familiar proposition that gambling has traditionally been left to the states also bundles together two things. When it comes to gambling games, the states have traditionally exercised that authority, and I think they should keep it. A casino game is local. I’m on the casino floor, and so are the other players and the dealer. State police powers make sense there. Gambling through futures markets is a different matter. Congress has been concerned about it for at least a century, going back to Senator Capper and the Grain Futures Act of 1922.
The federal framework took shape in stages. The definition of “commodity” continued to evolve through the Commodity Futures Modernization Act of 2000, the same law that repealed § 5g. Dodd-Frank partially restored a mechanism for addressing gambling, using the word “gaming,” limiting the provision to event contracts, and giving the CFTC discretion over whether to bar them.
I see no difficulty with the idea that Congress intended the CFTC to regulate derivatives across all commodities, including contracts based on sports performance, while leaving states a role in matters such as fraud. In my view, the judgment about which futures contracts may be offered belongs at the federal level. What puts the CFTC on a path toward becoming a national sports gambling regulator is its changed approach to exercising that discretion, coupled with the fact that the Wire Act’s application to these contracts has yet to be tested in court.
Finally, I’m glad you raised the implications for state-licensed sportsbooks. I wrote about that recently, and I think there’s a good chance that ordinary sportsbook bets qualify as swaps too.
My own read is that the CFTC has had authority over sports event contracts since at least 2000, but few expected it to get comfortable with those contracts. People read Murphy to say more about state authority than the Court actually held. States rushed in, the CFTC hesitated, prediction markets saw an opening, and here we are.
Thanks for yet another great post. I understand why Kalshi wants uniformity, but the seeming nexus between federal oversight and a "hiding in plain sight" CFTC will end someday (and, I hope, in about 26 months.) Hard it is not to be amused by the fact that Trump and his followers don't seem to grasp the concept that nothing lasts forever. P.S. I was a regular PredictIt user. I loved the site and never worried about it being used for nefarious purposes. Now? I wouldn't give Kalshi 10 cents.
Above the fold, you write "Today’s “Long Read” tries to provide a concise and accessible overview of what, exactly, Kalshi is doing that’s different from other betting apps;" I did not see though any differentiation below the fold of that anticipated differentiation. Why is everyone picking on Kalshi when Polymarket and others also allow sports betting?
The differentiation is between Kalshi (and its immediate competitors) versus traditional sportsbooks like MGM or Caesar's.
As for why Kalshi has become the avatar of the prediction industry's regulatory battles--they expressly chose that role by pro-actively suing states and petitioning the CFTC for rulemaking, whereas Polymarket et al. were happier to fly under the radar and litigate reactively.
Polymarket's primary exchange is not allowed to accept bets from US persons due to a 2022 CFTC enforcement action that Polymarket settled.
Really the distinction is between the CFTC-registered DCMs (Kalshi is the largest but not the only) versus state-licensed sports books. Polymarket is effectively in regulatory no-mans land for now.
It's kinda wild!
Wait Kalshi was self-certifying box-office receipt swaps in the pre-sports, post-registration period between 2020 and 2024 (ish)??
That may be a typo because, after Dodd-Frank, box office receipt swaps violate the Onion Futures Act (7 USC § 13-1).
Onion and box office receipts swaps are fine, just not futures (13-1 only catches “contracts for sale…for future delivery,”which is the dumb term of art for futures). Swaps weren’t invented until several decades after the futures ban.
I am glad my extremely niche practice area was useful for something today.
As a retired bankruptcy attorney, it seems obvious to me that the automatic stay blocks the liquidation and ultimately the collection of claims through arbitration proceedings. But I don’t have a prediction about the outcome because the Court’s understanding of bankruptcy is weak at best. As for Kalshi, it is beyond obvious that this matter, however it comes out, should be resolved by legislation, not adjudication. I don’t want the CFTC or a federal agency under the thumb of a corrupt unitary executive in charge.
The communications too, that were the heart of the original filing that led to the arbitration claim as well. I think that is important to consider as well. Trying to get them to "self-deport" their savings to Goldman Sachs despite a bankruptcy filing is, at best, edgy behavior. At worst, it's harassment of someone who falls under a court's protection.
... and the justices crush heavy on arbitration!
I hope there are regulations on “prediction markets” soon! It’s one more way for businesses to take advantage of (usually poorer) people. I’ll never forget Florida promoting starting the state lottery, which they sold as something to help education — while never mentioning it wasn’t meant to be a net increase; when it passed, they cut traditional funding, leaving no appreciable benefits, all while taking advantage of those who could least afford the money and those with compulsion problems (or both) — and arguably, those whose education was insufficient to let them understand they were being exploited.
Happened in many states.
Regarding the low volume this term, "No matter whether th' constitution follows th' flag or not, th' supreme coort follows th' iliction returns." Finley Peter Dunne. I imagine C.J. Johnny is at his desk, behind a closed door (natch!) muttering, "Ignore the six of us, ignore the six of us" like a mantra as he works.
On Kalshi, were am I wrong: My sportsbook is legal if I take 1 bet out of a million placed bets on an election outcome, or something random that's not sports?
Also, giving the CFTC that authority out of nowhere sounds like a "major question" that needs briefing from John Jay's papers on the matter. I expect Alito and Thomas will be all over that [intended].
I am interested in Rhea, though, since how far the automatic stay extends, whether Frank-Dodd modified the stay's reach by intent/implied intent (or whether, I think, Goldman Sachs is reaching), and fine print in an adhesion contract can override bankruptcy courts.
This feels like a good place to ask, since some of the controversy is about congressional intent and purpose.
What role would a statement of intent have if it was part of the original law? I.e., could Congress just explicitly have a section that said “we are aiming to achieve X and Y but not Z?”
Steve, congrats on the second book. I look forward to reading it.
To me, a proper resolution of the “mess” runs through a distinction that Justice Alito’s line in Murphy (“Congress can regulate sports gambling directly”) tends to collapse. One question is whether Congress gave the federal government authority over event contracts. Another is whether particular contracts are permissible. Those are separate inquiries. They ask what Congress intended in different respects and turn on separate provisions, some inside the CEA and some outside it.
I’d hoped the Court would get to consider both questions together. One possible answer is that the CEA preempts state gambling laws as applied to these contracts, but the contracts still can’t be listed under federal law. The pending petitions ask the Court to decide preemption, so a ruling could settle who gets to regulate these contracts and still leave open whether they can be listed at all.
The claim that nobody read the statute this way until prediction markets came along is factually incorrect. Gensler, of all people, should know that claims that start with “nobody” are dangerous territory. It only takes one counterexample.
I’m one. In an amicus brief I authored in Murphy, I urged the Court to look beyond PASPA and consider the CEA, and argued that futures contracts based on sports performance fell within the scope of federal commodity futures regulation. That wasn’t even my first attempt to get the Court’s attention. In 2013, I authored a cert petition asking whether sports performance was an excluded commodity under the Commodity Exchange Act and warning of a “litigation jam” if the issue went unresolved. I was making these arguments well before prediction markets and the CFTC took them up. But you know this much better than I do: The Court often rules narrowly, generally works within the questions presented, and is less likely to take a case when the commercial stakes are modest.
And there are other counterexamples. Scholars were asking whether sports could be an excluded commodity 20 years ago. The CFTC itself was grappling with the issue as early as 2004, when it designated a contract market but drew a boundary around sports. I take the argument against preemption seriously, even though I disagree with it. The historical claim that nobody was thinking about this, which has now made its way into appellate opinions, is a separate matter. The record shows otherwise.
On that note, if state law gave way to federal law here, I don’t see how 2010 is the turning point. If it happened, it happened in 2000. Dodd-Frank’s swap definition is central to the current litigation, but the question of what Congress intended goes back further.
The familiar proposition that gambling has traditionally been left to the states also bundles together two things. When it comes to gambling games, the states have traditionally exercised that authority, and I think they should keep it. A casino game is local. I’m on the casino floor, and so are the other players and the dealer. State police powers make sense there. Gambling through futures markets is a different matter. Congress has been concerned about it for at least a century, going back to Senator Capper and the Grain Futures Act of 1922.
The federal framework took shape in stages. The definition of “commodity” continued to evolve through the Commodity Futures Modernization Act of 2000, the same law that repealed § 5g. Dodd-Frank partially restored a mechanism for addressing gambling, using the word “gaming,” limiting the provision to event contracts, and giving the CFTC discretion over whether to bar them.
I see no difficulty with the idea that Congress intended the CFTC to regulate derivatives across all commodities, including contracts based on sports performance, while leaving states a role in matters such as fraud. In my view, the judgment about which futures contracts may be offered belongs at the federal level. What puts the CFTC on a path toward becoming a national sports gambling regulator is its changed approach to exercising that discretion, coupled with the fact that the Wire Act’s application to these contracts has yet to be tested in court.
Finally, I’m glad you raised the implications for state-licensed sportsbooks. I wrote about that recently, and I think there’s a good chance that ordinary sportsbook bets qualify as swaps too.
My own read is that the CFTC has had authority over sports event contracts since at least 2000, but few expected it to get comfortable with those contracts. People read Murphy to say more about state authority than the Court actually held. States rushed in, the CFTC hesitated, prediction markets saw an opening, and here we are.