Kalshi court losses pile up as judges refuse to block state gambling laws
arstechnica.com
arstechnica.com
You could buy a stock expecting asset appreciation, but the stock itself is a certificate of ownership in a business. Even a derivative of this, like options trading, is a contract to buy or sell or deliver said certificate of ownership in a business. Ultimately it is backed by something of tangible value.
"Predictions markets" are all of the mechanics of trading, but without any underlying value. It is literally gambling wearing Groucho glasses. The bet is simply for the sake of the bet.
There is now effectively little to no difference.
With stocks if I try to do insider trading I run the risk of Jail time. Or if I try to do a Pump and Dump scheme, I go to jail. If I am an person and I "place a bet on polymarket/kalshi" and then go and influence that outcome. It may not be illegal. Since these markets commodify literally any event, its impossible to control the items themselves. So the markets need to be controlled.
Easy. Financial instruments are used to tune the resource allocation in capitalism. Gambling however is used to have fun with an idea of getting free money. As such, one is at odds with the religious beliefs based on not having fun for no good reason.
The ancient issue with gambling is that neither the gambler nor any operator is producing anything of value. With nothing to show from any party, medieval scholars would declare gambling undeserving of any financial flow. Most Christians are still (at least unconsciously) working from these principles, even if the operations of the economy has changed since then.
Vibes and experiences are bigger part of the economy, this is true, but gambling is rightfully in the same cathegory as alcohol, (other) drugs, porn, algorithmic social media feeds etc. Some constrains are needed for all of the above, as they all create ill effects either on a person engaging in it and often on a society at large.
I think that constrains on what kind of fun you can have is big part of what religion is useful for.
Like, at least try to put effort to the comment to show you thought about it beyond the obvious propaganda of gambling companies. What, specifically, is the same? Why arent the differences important?
The apps know who the whales are. They make up 90% of their revenue. Ban them from taking money from whales, and the problem evaporates back to harmless $20 fun.
How to do this? Demand proof of income or assets and rent above $2000 in bets made in one year. Then audit these companies to ensure they are banning problem gamblers. If they are gambling or losing more than 5% of their net worth/income, that is a whale and they need to be play within their limits or get banned.
This is trivial to do, including at casinos. No one wants to do this because those companies have interests and that means their $100B+ scam industry is gone.
I actually had a colleague who was a whale. Spent about $30k/yr on mobile games. He was staff level and made like $350k, single guy, so while it was hard for me to understand, it's also hard to say he was being duped or something. He just really liked the games, liked cosmetics, and liked to "support the devs".
These whales will be pissed if you ban them. Why should they be banned from their hobby because someone else can't be personally responsible?
The GP said "Demand proof of income or assets", so a 'whale' for whom $3000 a week is pocket change would still be free to squander it. There are already laws which require individual investors in private startups to show $1M in assets but online sports books and casinos are largely free to prey on gambling addicts.
These companies post little notices like "Addicted to Gambling? Click here for help" but then relentlessly optimize dark patterns in their apps to target and trigger addicts. Search and you'll find lots of documented evidence of shockingly abusive tactics.
It doesn't really seem like Kalshi and Polymarket have nearly the same regulation. There are plenty of cases where people are purposefully betting on the market when they can easily manipulate the results, with little/no consequences.
I guess the thin veneer of deniability here is that the whistleblower isn’t shown actively trading on the information lol.
Furthermore the institutions that allow you to trade mostly aren't taking positions on the stock price and in theory there are jail-time consequences if they cheat. In practice that isn't always the case but at least there is some limit to what they can do to screw over their customers.
These contract markets have absolutely none of that. If they decide to take up positions to stuff their own pockets you probably wouldn't even know it and it wouldn't be illegal either. They can make up contracts for anything and everything without limit. If they aren't front-running their own customers then they're idiots because that's free money. And they can just lie about the odds as they like so if bets aren't going the way they want just tip the scales.
Oh and they have absolute control over whether any event counts as success or not and how to handle edge cases. There's no one you can appeal to.
Maybe they operate above-board in all aspects. Maybe they don't. No one really knows.
[0] https://www.businessinsider.com/polymarket-paris-weather-bet...
If you're holding Florida grapefruit futures, hedging against an early freeze is an economic trade on the future value of a real thing.
Almost anything can be gambling if you make it gambling. Effectively all the assets in the securities world that can be bought and sold as derivatives exist to facilitate and existing industry by offsetting risk.
There is a world of difference between someone treating corn futures as a roulette wheel, and an entire industry existing whose sole purpose is pure gambling with all of the negative externalities that fall out of that:
>I reported an Iranian missile strike... then gamblers who had wagered millions on a deranged bet threatened to kill me
https://www.dailymail.com/yourmoney/article-15651989/polymar...
Cordially, this is kind of like saying in a discussion about mathematics, "numbers are backed by something real." And hand waving over a whole suite of objects that have no real backing at all.
Options and futures contracts have existed in some form for pretty much the entire history of commerce. The heart of the problem is that people need to be able to take risk for some endeavours, and want to have financial instruments to mitigate that risk.
In blunt terms: if it's ok for the farmer and the baker to agree on a forward futures contract for the price of wheat so they can run their business, then it should be ok for both parties to sell their contracts on the secondary market to get liquidity (e.g. a farmer is fully leveraged in seeds, has the promise to sell wheat for price x at time y, but needs cash now to fix whatever). The bank should then be able to monetize it's exposure and sell calls on the open market. At this point we're not trading on anything "real" anymore than betting whether the harvest season will be good (or bad)
That secondary market is as real as anything on kalshi. So how would you propose to craft laws to mark one as gambling and the other as investing?
Why wouldn't they be regulated any differently?
1. Purpose: derivatives serve primarily as risk management instruments. Gambling serves pure profit and entertainment.
2. Topics: derivatives focus financial assets, commodities and economic risk. Gambling focuses on micro, generally sports, events.
Obviously you could make an argument that both instruments can be used for both purposes.
If I'm a worker at a football team who's job depends on my team qualifying to the Uefa Champions League, betting on my team not making it can be considered risk management.
In the same fashion futures on oil prices can be equally used for pure profit and entertainment purposes.
This is the ideal, yes. But I'd bet about 99% do the opposite and double their risk by betting on their preferred outcome.
Also, betting on something you have control over introduces perverse incentives. It's easier to sabotage an effort than make it succeed.
That should be plain illegal, in the same way sportsmen are barred and punished for being anywhere near betting.
But we have politicians, their staff and administrations openly trading and betting on outcomes they can influence.
In the large US professional sports leagues (NFL, NBA, MLB), it's not uncommon for some of the most long-term losing teams to be the most financially profitable.
In the case of the NFL, the league itself is owned equally by each of the 32 teams. They each get a 1/32nd share of league revenue regardless of win/loss. While many costs like player contracts are capped, other costs (like coach contracts) aren't. Since the majority of income is equally split, one way to max profits is to spend less than other teams where they can.
From the days of "My six sheep for your two cows" to modern derivatives, asset trading markets are useful and necessary for economic exchange, price setting and market clearing in a way that self-referential 'poker chips' are not.
Yes, their value fluctuates on the market from lots of different factors. But the thing you're buying is very real and very well regulated compared to a prediction bet.
In practice, they don't work like that anymore and you get the majority of the value by buying/selling the stock to another party.
Stocks have effectively degraded into gambling style instruments.
That's an overbroad generalization. They can be degraded into effectively being gambling style instruments if you want, but that's NOT what they fundamentally are. Stock and commodity trading markets drive positive-sum capital formation, whereas prediction markets and sportsbooks are zero-sum synthetic side-bets.
As someone who once printed original stock certificates for the startup I co-founded in my apartment back bedroom after nervously scribbling a $10,000 personal check to open a company bank account, then years later surrendered those same sheets to an investment banker on the eve of our IPO, the distinction between investing in something I own and gambling on something I don't feels rather concrete.
[1] https://www.cfainstitute.org/insights/articles/investing-vs-...
In part, in part not. Insurance and gambling are inherently similar—they’re both negative-sum games taken alone. (Insurance can become positive sum when one considers what one is protecting.) Investing and gambling are fundamentally different—the former is a positive-sum game.
That doesn’t mean you can’t gamble in the stock-market. Options are, for a non-hedging buyer, negative sum. Someone day trading meme stocks, similarly, would be expected to lose their money in the long run. On the other side, a professional poker player may be able to play a gambling game as a non-gambler.
So no, differences aren’t blurring. But awareness is, and companies like Kalshi are predating on that.
That may just mean you don’t understand the regulations and legal definitions involved. Shares of stock are portions of a company entitling the owner to dividends and possibly influence over company direction. Do shares on Kalshi represent a portion of a company and entitle you to a dividend?
No. So the line remains clear: You are allowed to trade stock as long as you follow the stock trading rules. You are not allowed to trade “Kalshi market shares” unless the rules change. You can say that they should change, but there’s no confusion about what is stock and what is illegal gambling.
Kalshi could perhaps try to list their company on the stock exhange and have the market shares become actual stock somehow, but they’d quickly run afoul of the stock trading rules if they tried to give larger dividends to some shareholders than others based on which markets they’d invested in. It would become an impossible headache, which is why they won’t do it.
Note that commercial companies are obliged by law to maximize shareholders value, government can punish them if they don't.
Gambling, on the other hand, only redistributes capital around, without creating any value, which would be at least benign, if it didn't _attract_ all kinds of crime: drug abuse, human trafficking, fraud and violence.
And the price you pay then already accounts for your future ability to resell your stock to anyone else later, stocks would valued way less if you could only sell it back to the company.
But also don't forget that public trading is only one market, there's also a huge market for private companies stocks. Those go directly to the company for its operations.
And I also haven't touched dividends.
I think Nevada’s and Arkansas was also mentioned - I guess Arkansas is in the fifth circuit - those are more comprehensive and broad than New Jersey’s in the third circuit
Ultimately I expect Kalshi will have the swaps treatment reaffirmed, and the supremacy clause will override most of the state laws
But for Nevada and Arkansas residents it will be unworkable, and they will just block some forms of bets for residents in those states
otherwise Democrats are still without power to unilaterally pass laws
have there been any proposals to deal with this? bills that didnt make it out of committee?
something as simple as adding some contracts to the ban in the onion futures act I think is a mistake
Of all of the ridiculous things that qualify as interstate commerce: prediction, futures, and derivatives markets are squarely within the definition.
If we're stuck with endemic gun violence because of an 18th century definition of "well regulated militia" then there's no way a purely online marketplace counts as interstate commerce. How do you fit that on a horse, exactly?
Okay, so digital marketplaces aren't interstate commerce? Try again. Insurance markets? In what reality is "commerce" defined as exclusively-physical goods?
> well regulated militia
Anyone that spouts this immediately signals their lack of English knowledge, law insight, etc. Even RBG didn't attempt this argument because it's literally, obviously invalid.
The reality of pre-industrial America circa the writing of the Constitution, which we have decided defines the limit of interpreting the language in that document.
If we're going to do that with guns we should be consistent and do that with everything. Non-physical goods didn't exist back then, the founders didn't know what an internet was, therefore online "commerce" doesn't exist as far as the constitution is concerned.
>Anyone that spouts this immediately signals their lack of English knowledge, law insight, etc. Even RBG didn't attempt this argument because it's literally incorrect.
And yet, DC vs. Heller.
Did insurance markets and stock markets not exist back then? The Dutch East India Company is almost 200 years older than the United States.
Why the fuck can't you read?
> Why the fuck can't you read?
I'm not the one throwing "well-regulated militia" out as a serious argument (as if prefatory clauses somehow change the remainder of a sentence.) Why the fuck can't you read? Perhaps you should volunteer to be on the door-to-door confiscation squads.
Take it up with the Supreme Court then.
Labor is a commercial service that has existed back to prehistoric times.
Ultimately, it seems you are arguing originalism, which is an opinion of interpretation that a minority of justices hold.
I'm arguing that the Interstate Commerce clause was originally intended to apply to physical goods being transported across state lines.
You could transport physical money across state lines. You couldn't transport "a banking" across state lines.
You could transport horses, humans and machines. You couldn't transport "a labor."
Every one of these things comes down to some physical item that could be taxed as it crossed a border. That was the entire point of it.
So "data" and "information" don't count. Nothing exists that actually crosses state lines.
Not only was he was alive to see this clarified by SCOTUS in Gibbons v. Ogden, 7 years after he left the presidency -- in letters, he was himself arguing that congress should regulate shipping services.
https://founders.archives.gov/documents/Madison/99-02-02-154...
Now, Ogden was arguing what you are -- that it only applied to the movement of physical goods -- but this was found to be the losing argument. And this was quite early on in that document's history.
so thats easy to square.
good news, the current Supreme Court has expressed interest in re-evaluating the New Deal era interpretations of the interstate commerce clause, in a way that could completely obliterate the Federal state and all of its agencies of the last 100 years
“omg I love SCOTUS now?”
The CFTC relied on rules about exempted commodities to grant itself the power to license the likes of Kalshi. The question is whether that’s a major question.
The question at hand here isn’t either of our points. The question is whether or not prediction markets are gambling with lipstick on.
when federal law is completely absent, states have the right to behave however they want, thats the 10th amendment
federal law is not absent, state laws are curbed, in its simplest interpretation
If you’re in a state with a Democrat AG which is also pursuing Kalshi in court, look up your state’s bribery laws and see if your AG can open an investigation into criminal conduct under state law.
[1] https://www.ft.com/content/f70147b1-ee77-4d75-8587-707a49ddb...
Hey, maybe we can get that listed as a bet!
Maybe. One usually can't structure around criminal law. If they managed to, somehow, the Congress needs to investigate to amend the law to ensure you can't structure around obvious bribery.
Either way, a criminal investigation by the states is warranted.
I don't see how that applies in this context which is pretty simple. The transaction with Don Jr. was a board advisory role in exchange for equity. Broadly, bribery is "paying to influence the actions or decisions of a public official." Don Jr. isn't an official. He signed a contract to provide board advisory services. The contract wouldn't say anything about anything else. I've been a board advisor and signed a similar contract (if not the same one, they're quite pro forma).
Absent a secret recording establishing payment for influence, there's nothing to prove bribery. Do I think making him an advisor was done in the hope it would influence his father to promote and sign favorable legislation? Yep. Do I think there's any chance evidence exists to prosecute that? Nope.
A Democrat controlled congressional committee can certainly issue subpoenas, have a public hearing and ask Don Jr and/or the company CEO a bunch of leading questions - and all the answers will deny any quid pro quo or wrongdoing. Personally, I think the companies probably knew giving Don Jr. a bunch of money wasn't a very reliable way to ensure Trump's cooperation. It's quite clear that Trump demands loyalty from all but gives none in return. I think their main bet was that hiring Don Jr. would cause potential investors and business partners to infer the company had lower regulatory risk, making the net cost of investment capital lower. Dumb, but that stuff actually works to some extent.
Nadine Menendez wasn't an official. She still went to jail for corruption [1].
> Absent a secret recording establishing payment for influence, there's nothing to prove bribery
Or a text. Or demonstration of policy moves by the Trump administration that benefited Kalshi.
Even if the criminal investigation doesn't yield proof beyond reasonable doubt, it could then be turned into a civil case against Kalshi's officers and Don Jr.
> Democrat controlled congressional committee
Sure. It should also be pursued by state AGs. Trump can't pardon a state conviction.
[1] https://www.justice.gov/usao-sdny/pr/nadine-menendez-sentenc...
This stuff goes back decades, and I suspect both parties look the other way because when they get in power they're doing the exact same thing.
...at a time when no Biden family member held elected office or was running for elected office and no Biden family member worked for the federal government.
Are you seriously going to compare that to things the Trump family does while Trump is President?!
Note that Polymarket's non-US business is crypto blockchain whatever so ... good luck with that. The ability to get your money out could disappear at any time and as far as I know there's no recourse if they just decide to screw you over. Not that CFTC is super effective but it is something.
So is Kalshi. The entire question is how the CFTC made up the authority to regulate gambling out of statute that only ever mentions exempted commodities.
Also, more to the point, Polymarket actually does have at least three active lawsuits against it.
edit: looks like this has something to do with it:
> Kalshi has been a CFTC-regulated exchange since 2020. Polymarket exited the US in 2022 after settling charges with the CFTC, and only came back after buying QCEX, a CFTC-licensed exchange, in late 2025.
The main thing getting Kalshi all the attention from the states is their sports gambling markets. Not sure if polymarket offers those to US.
There are 3 separate reasons WHY states are so strongly opposing Kalshi's sports gambling: 1) Kalshi is doing it in a way that avoids state taxation, licensing and regulation, 2) the online sports gambling companies spending billions on TV commercials don't want untaxed, unregulated competition, 3) The major sports leagues are concerned it will undermine the integrity of the 'product'.
Of course, there's no material difference in actual harm to the public between Kalshi sports betting and Online Sportsbook Apps, they both enable gambling addicts, cheating, etc. The hardball reaction is about ensuring Kalshi sends tax, licensing and lobbying money to each state government. The sportsbooks have spent billions ramming gambling legalization through and don't want Kalshi getting a 'free ride' on the bus they paid for.
Even the sports league's opposition isn't as pure as it appears. While they don't want players, coaches or referees to undermine game outcomes, they also sell exclusive access to real-time on-field data feeds to sportsbooks for hundreds of millions of dollars. The TV feeds we watch at home are ~8 to 15 seconds delayed. Getting the real-time outcome data from every pass, kick and run in 800ms vs ~8s on TV is worth hundreds of millions to online sports apps because it lets them front-run real-time bets. When people at home make real-time prop bets on the next play, many times the company already knows the outcome. Something to remember next you hit "Bet" on a real-time prop and get a spinner saying "odds updating" and then "bet expired". It might be because your bet was going to win, while if you'd taken the other side, it would have accepted the bet and taken your money. Yeah, that's against the law in a casino but not in an online sports app. Right now, those apps being "Regulated", mostly means they're paying taxes, licensing fees and following "Know Your Customer" policies to minimize money laundering and minors gambling. Actual fairness of the bets doesn't enter into it any more than carny midway games. Consumer bettor's job is to consistently lose, while only winning a little back often enough to bias selective memory and keep them interested. Anyone who actually wins too often on bets that are too big, quickly gets their acct capped to $1 bets.
"Kalshi gaming regulation
You know what's funny? There is a real legal dispute about whether Kalshi and other prediction markets should be allowed to offer sports bets without complying with state gaming laws. Kalshi and the US Commodity Futures Trading Commission take the view that (1) Kalshi is federally regulated by the CFTC, (2) sports bets are "swaps" under federal regulation, (3) federal regulation preempts state gaming regulation, so (4) buzz off, states. Many states disagree, and there has been litigation around the country. (We have talked about this several times.)
Two federal appellate courts have sided with the states, but another has sided with Kalshi. The state that lost that last case (New Jersey) is asking the Supreme Court to review it, and last week 39 states filed a brief supporting New Jersey's request. So did the National Football League. I assume that the Supreme Court will take the case. I have no idea what it will decide. I think this is a tough question, courts have disagreed on the answer, it is all pretty politically charged, the Supreme Court can kind of do whatever it wants, and I have no real model of what it will want. I could not tell you the probability that Kalshi will win and get to continue offering sports bets.
So, out of muscle memory, I fire up Kalshi to check that probability. "Supreme Court Will Rule Kalshi Sports Bets Are Legal, Yes/No," where is it? But Kalshi doesn't list that contract![1] Here's "A Kalshi Contract on the Legality of Kalshi Contracts," by Joseph Grundfest:
'This note proposes that Kalshi list a "Kalshi Sports Legality" contract indexed to the outcome of United States Supreme Court litigation addressing whether Kalshi's sports-indexed contracts are federally regulated in a manner that preempts state law. Kalshi has previously listed at least 16 contracts indexed to Supreme Court determinations. No rule or regulation prevents Kalshi from listing the proposed contract. The proposed contract would provide a market estimate of the probability that the Supreme Court rules that Kalshi's sports-indexed contracts are legal. The contract would thereby create valuable hedging opportunities for Kalshi investors. It would also create hedging value for Kalshi customers who might lose access to Kalshi markets. These hedging rationales are more substantial than rationales Kalshi presents to support other Kalshi contracts, such as contracts indexed to parlays or to specific in-game events, such as whether the first play in a football game leads to a touchdown.'
I mean, sure, of course. You and I and Joseph Grundfest can propose sarcastic Kalshi event contracts, but Kalshi doesn't have to list them. Hypotheticals!
If Kalshi listed this contract, and it traded in reasonable volume and showed a [90%][10%] probability of Kalshi winning, would that make it [more][less] likely that Kalshi actually would win? Would the prediction market implied probability affect the outcome? Would talented appellate lawyers look at the market and think "oh Kalshi is definitely going to [win][lose], so I should join [their][the other] legal team"? Would the Supreme Court justices, or their clerks, look at this market and think "ah, the smart money is that Kalshi will [win][lose], so that's probably right?" People have concerns like this about prediction markets on elections: A prediction market showing one candidate winning might drive money and attention and support to that candidate and become self-fulfilling. And here is a Wall Street Journal article about the effects of prediction markets on juries: "If millions are wagered on the belief that a defendant will be acquitted," it asks, "could that make a jury more reluctant to convict?" I don't think that the Supreme Court exactly works like that, but on the other hand the Supreme Court, like an election or a jury, is a mechanism for aggregating the votes of several humans, so maybe it works a little like that. If it did work like that, and it showed a 10% probability of Kalshi winning, would Kalshi delist the contract? (Does the lack of this contract suggest something about its expected probability?)
If it did work like that, and it showed a 10% probability of Kalshi winning, could Kalshi, you know, buy a bunch of this contract and push its probability up?
All that aside, if Kalshi listed this contract, could it hedge its sports gambling risk by betting against itself on its own market? Discuss!"
But factually, SCOTUS does have authority over the application of the supremacy clause. At some point they will send federal agents in and enforce it themselves.
Which decision is relevant?
You’d be hard pressed to argue that states should be individually able to control futures trading
It really isn’t. Nobody is challenging the federal government’s authority in the matter. Just whether the CFTC is reading statute correctly.
The Congress could choose to regulate or legalize prediction markets. It hasn’t. It created laws for exempted commodities with Dodd-Frank and the CFTC and Trump sort of ran with that.
I ask because there are issues where I have an opinion, but I think the "marketplace of ideas" is a reasonable solution, and there are issues where I'm a strong enough proponent of my opinion that I would prefer to live in a world where it is federal (or even global) law.
SEC is down for whatever right now too by the way
In ordinary times when the CFTC is just regulating things like pork belly futures, sure. But crypto and sports gambling are extremely politicized and red-coded now; Kalshi shouldn't expect the same sleepy regulation for them as for ordinary commodities.
Honestly I don't see their endgame. Even if they win these cases in court and fall under CFTC jurisdiction, that only matters if they have friendlies in the White House and the next administration will have knives out for them.
nobody in business cares that the people are married to “due process” to respect the edicts, versus some other governance structure. just delay and adapt is the whole game. the corporation is a conduit to flow revenue to board, executives and functionally shareholders (but dividends are now uncommon). The corporation can become a husk if it fails to adapt and that wont be the current people’s problem if they have extracted substantial wealth out before then
https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bi...
https://www.fxcm.com/markets/insights/bitcoin-futures-produc...
"Nearly 20 million Americans show signs of problem gambling, which can include incessantly thinking about gambling, feeling irritable when not betting and continuing to gamble more money after a loss in a panicked attempt to win it back, according to the National Council on Problem Gambling. In May, Kalshi became a member of the council and donated $2 million to the group."
1791627120 | Gambling Addiction Group in Shambles After It Turns Out It's Funded by Kalshi | https://futurism.com/future-society/gambling-addiction-group... | not submitted
1793885715 | Ties to Kalshi Throw Gambling Addiction Group into Disarray | https://www.barrons.com/articles/kalshi-prediction-market-ga... | https://news.ycombinator.com/item?id=50378891
If it's not gambling then why donate to NCPG