Last week, prediction market startup Kalshi sued New Jersey and Nevada after they tried to shut down its recently launched sports trading operation.
In the lawsuit, Kalshi claimed that, since theyre a federally regulated platform, state gaming commissions dont have the authority to set rules for them.Were not necessarily very concerned [because] we are regulated at the federal level, said Kalshi CEO Tarek Mansour last week at a StrictlyVC event in San Francisco.
The state law doesnt really apply.If Kalshi wins these lawsuits, the startup could secure its place in the lucrative market of sports betting.
However, the legal challenge may also pave the way for a clash between state regulators and the Trump administration.This isnt the first time Mansour has challenged a regulators authority.
Last year, Kalshi won a major legal battle against the Commodity Futures Trading Commission (CFTC), allowing it to process more than $1 billion in trades based on the outcome of political elections in 2024.In battling the CFTC, weve had to eat a lot of s over the last five years, said Mansour.
Id do it again in heartbeat.From political elections to sports In January, Kalshi made the leap into prediction markets for sporting events, allowing users nationwide to bet on the outcomes of March Madness and the Super Bowl even in the 11 states where gambling is illegal.However, six states where sports wagering is legal including Nevada, New Jersey, Illinois, Maryland, Ohio, and Montana sent Kalshi cease-and-desist letters claiming its sports prediction markets are de facto sports bettings.
State gaming commissions argue Kalshi is not properly licensed, nor is it paying state taxes on the sports trades it offers.We have a license.
Its by the CFTC, said Mansour.Mansour argued onstage that the real motivation behind these cease-and-desist letters was a massive casino lobby thats unhappy about Kalshis sports trading contracts.On Tuesday, Kalshi notched its first legal win in its lawsuit against Nevada.
A federal judge ruled that Kalshi can continue operating in the state of Nevada, at least until the lawsuit is settled.Prediction markets are relatively new financial instruments, meaning its somewhat unclear which laws apply to them and which dont.
Kalshi seems to be taking full advantage of the ambiguity, allowing users to bet on everything under the sun, from the date Elon Musk leaves DOGE to the winner of the World Series.Nevertheless, Kalshis legal battle should provide some clarity on the scope of prediction markets.Trump tiesKalshis prediction market, and others like it, showed Trump would win the 2024 U.S.
presidential election days ahead of election night, despite other polls suggesting otherwise.
In the months since, Kalshis ties to the Trump administration have grown strong.[Kalshi] was the only source of truth that people had about the fact that Donald Trump, indeed, had a 63% chance of winning the US election, said Mansour.In January, Kalshi brought on Donald Trump Jr., the presidents son, as a strategic adviser.
In February, President Trump appointed a former Kalshi board member to lead the CFTC.
And in March, Kalshis top lawyer left the company to work with Elon Musks DOGE group at the Securities and Exchange Commission.Onstage, Mansour downplayed his reliance on the Trump administration but praised it for being pro-innovation in the financial services sector.Gambling versus predictingA key question in Kalshis legal battle is whether prediction markets are just plain gambling.
State regulators seem to think so, but Mansour argues theyre not, he told A Technology News Room onstage.
According to Mansour, gambling involves creating artificial risk and betting on it such as rolling a die and wagering money on the number that comes up.Instead, Kalshis CEO argues that prediction markets are more like derivatives exchanges, which have some risk involved but ultimately help market participants price, or understand the risk of, certain assets or events that would be impossible to assess otherwise.
Derivatives exchanges provide unique information, so theyre granted special status.As an example of Kalshis economic utility, Mansour pointed to its prediction market for the TikTok ban.The TikTok ban is something that you just really couldnt price before, said Mansour.
Its something thats pretty important that we didnt have any sort of gauge on what was going to happen, so I like this market a lot.Of course, it benefits Mansour to make these arguments.
Kalshi was last valued at $787 million, according to PitchBook data.
However, if Kalshi can secure its place in the sports betting world, the startups valuation is likely to skyrocket even further.Watch the full interview here.