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It feels like every week Kalshi is catching a new lawsuit from a state. The latest one? The state of Washington (not to be confused with the nation’s capital).
Washington State Attorney General Nick Brown dropped a bombshell lawsuit against the popular prediction market in an attempt to chase it away from the state. The lawsuit letter has a lot of meaty quotes, but here’s one as a frame of reference:
“Under longstanding, well-established, and unambiguous Washington state law, Kalshi’s gambling operation is illegal,” the Attorney General’s complaint said.
We’ve heard this story already, haven’t we? We have. Still, it’s another dose of pressure on the world of prediction markets and whether it’s a form of legalized sports betting or not. Let’s discuss the issue from the vantage point of Washington state next.
Washington Has Always Been Strict With Betting
The state of Washington has a huge reputation for being liberal, and that’s usually not wrong. It is, but when it comes to legalized betting, they’ve been stricter on the industry than most other 49 states.
It’s not that betting is illegal in the Pacific Northwest state, but it’s very, very restricted. Only Washington-based tribes are allowed to offer both sports and casino betting. That means commercial casinos or popular sports betting apps are barred from offering gaming of any kind.
Online betting as a whole was struck down in Washington in 2006. This was mainly targeted at online poker, but it ended up stretching to everything. Online casinos, and yes, online sports betting in Washington.
Heck, even daily fantasy sports (remember those?) is NOT fully legal inside of Washington. They are accessible inside the state, but sort of through a back door. Whereas many states fully legalized DFS, Washington chose not to (but it didn’t implicitly ban it either). Still, this sort of apathetic attitude toward betting has been a signature of most Washington lawmakers.
Well, until now. The attorney general’s move is a direct attack of Kalshi and other competitors like Polymarket, DraftKings Predictions, or FanDuel Predicts. The latter two are interesting because they are offshoot products from traditional sportsbooks, who can’t operate freely in Washington. Apps like DraftKings or FanDuel have to partner with a local tribe to be accessible in the state, and even then, can only take bets when inside tribal property.
So offering prediction markets — which work freely anywhere in the state — has been a last resort for apps like DraftKings to reach more Washington residents. And if this lawsuit against Kalshi specifically is successful, then those other prediction platforms would be on their way out of the state, too. But how much merit does the lawsuit have anyway? Let’s investigate.
Attorney General Asks For Serious Consequences
As mentioned earlier, Brown wants Kalshi to be removed from the state. But not only that, it also wants to be repaid for the illegal betting that has taken place. Sort of. They’re not asking for tax dollars, they’re telling Kalshi to re-pay Washington residents who lost money on the platform. How nice of them, eh?
This is all because Washington believes sites like Kalshi meet the state’s definition of illegal gambling. Per the state law, that’s when “staking or risking something of value upon the outcome of a contest of chance or a future contingent event.”
In effect, that’s what Kalshi and the like are doing, right? We can open up the site right now and throw money on who wins on the next MMA fight card à la regular UFC betting. But… Kalshi argues this is futures trading, not sports betting.
This is what they argued a year ago when receiving a similar lawsuit from the state of New Jersey, who ironically, are the ones that blew the lid off the federal ban on sports betting in 2018. In that case, Kalshi successfully argued their product doesn’t fall under the state’s jurisdiction anywhere.
Since they are a “derivative market”, they fall under the watchful eye of the Commodity Futures Trading Commission (CFTC). Oh, by the way, Kalshi already has a license from the CFTC to trade “event contracts”, which these sports fall under, they say.
You can see why there’s all this confusion, right? But ultimately, Kalshi won that court battle with New Jersey with a 2-1 vote, hence why they continue to operate freely across the country.
CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” CFTC Chairman Michael Selig said at the time.
Will Washington Get Their Wish?
This is the hundred million, if not billion, dollar question, ain’t it? Will Washington get their wish with this lawsuit?
They have to get in line, that’s for sure. Other states also in queue with lawsuits (or even criminal allegations) toward Kalshi or similar services includes Arizona, Connecticut, Nevada, Michigan, Ohio, and a few others. At this rate, we’d expect the list to grow, too.
It feels like we’ll know the outcome of all these state lawsuits in one fell swoop — maybe a new federal regulation or worst-case scenario, a Supreme Court ruling. That’s months away, though, if not, years. So expect Kalshi to continue its onslaught in the meantime…
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