The U.S. Circuit Court of Appeals for the First Circuit scheduled oral arguments on Wednesday in the Robinhood Derivatives appeal of their case against the Massachusetts attorney general and state gaming regulators that was dismissed by a federal district court.
The appeal is a regulatory and jurisdictional challenge regarding whether sports-event contracts and prediction markets can be regulated by the Massachusetts Gaming Commission. Robinhood filed the suit to seek declaratory and injunctive relief against state gaming regulators and the attorney general.
Judge Richard Stearns entered an order to dismiss the case for lack of jurisdiction and merits, allowing Robinhood to appeal to the First Circuit.
“For now, the appeal concerns threshold justiciability questions, not the broader question of whether federal law displaces Massachusetts’ authority to regulate sports event contracts as sports wagering,” gaming attorney Daniel Wallach wrote on LinkedIn. “But you never know what might pique the appellate court’s curiosity.”
Meanwhile, the U.S. Circuit Court of Appeals for the Seventh Circuit has granted Kalshi’s petition to appeal a Wisconsin federal court’s denial of the company’s motion to dismiss the Ho-Chunk Nation’s Indian Gaming Regulatory Act (IGRA) claims that would prohibit Kalshi from offering sports-event contracts on the tribe’s land.
The dispute centers on whether Kalshi can offer sports-event contracts on Indian lands without tribal gaming authorization, clashing with the Unlawful Internet Gambling Enforcement Act (UIGEA) carveout for CFTC-regulated designated contract markets (DCMs).
CFTC-regulated DCMs are excluded from UIGEA’s definition of “bet or wager.”
Both the U.S. Court of Appeals for the Ninth Circuit, in Blue Lake Rancheria versus Kalshi, and the Western District of Wisconsin ruled that IGRA applies to sports-event contracts offered on tribal lands and rejected Kalshi’s argument on the UIEGA carveout.
“The Seventh Circuit’s consideration of the issue could have significant implications for the intersection of federal prediction market regulation and tribal sovereignty,” Wallach wrote.
In other developments:
- The New York Supreme Court has ordered Kalshi to show cause as to why it should not be compelled to comply with the New York State Gaming Commission investigative subpoenas. A hearing is set for December 14, with Kalshi’s response due December 7.
- Former U.S. Solicitor General Paul Clement will represent Kalshi at the U.S. Supreme Court. In a letter to the high court this week, Clement requested a 28-day extension to file Kalshi’s opposition to New Jersey’s cert petition, moving the deadline to December 9. A decision on whether to grant or deny cert was expected on January 11.
Battle for the Beehive State
Utah’s attorney general has upped the ante in the state’s efforts to block prediction market companies from offering residents the opportunity to purchase sports-event contracts, describing them as illegal gambling.
First, Derek Brown, a Republican, filed charges against Kalshi and its two co-founders, Tarek Mansour and Luna Lopes Lara, accusing them of illegally promoting online gambling and allowing an undercover agent to place wagers on sports. If convicted on all counts, the two founders face up to 75 years in prison.
Brown’s decision to file criminal charges has had an impact on others in the industry, with both FanDuel and DraftKings ending their sports, politics, and novelty contracts in Utah on Friday. According to media reports, Fanatics has also pulled out of Utah.
The three gaming companies are also licensed to offer sports betting in a number of states.
“Effective immediately, sports, novelty, political, and certain other event contracts are no longer available on DraftKings Predictions for customers physically located in Utah,” the company said in a statement emailed to CDC Gaming. “Customers are still able to trade financial-event contracts, including those related to stocks, commodities, and cryptocurrency. Any open positions customers hold in the affected markets will remain open and settle as normal.
“DraftKings remains committed to operating responsibly and transparently,” the company said
The charges were filed a day after the Commodity Futures Trading Commission (CFTC) sued to block the state from enforcing its anti-gambling laws against Kalshi.
North American Derivatives Exchange (Nadex), which operates the Crypto.com OG.com prediction market platform, has also filed a lawsuit against Utah. The lawsuit was in response to an October 20 suit filed by Utah against Kalshi in state court.
On Thursday, Utah continued its pushback against Kalshi, filing a motion for a preliminary injunction, seeking to bar the prediction market exchange from offering event contracts for politics, elections, culture, sports, and mentions.
Brown is also asking the court to require Kalshi to implement geofencing and account-based restrictions at least as stringent as those required by court orders in Nevada, Michigan, and Washington.
The Third Judicial District Court for Salt Lake County has not yet ruled on the motion.
So far, Brown has brought charges against Kalshi and two executives. It’s unclear whether Utah’s attorney general is preparing to file criminal complaints against other prediction market operators.
Kalshi, Mansour, and Lopes Lara are facing one count of pattern of unlawful activity, a second-degree felony; 12 counts of online gambling promotion, a third-degree felony; and one count of general gambling promotion, a Class A misdemeanor.
“Gambling is illegal in Utah, whether you place the bet, run the game, or promote it,” said Brown. “Calling it a prediction market doesn’t change what it is and being federally registered doesn’t put a company above the law.”
Brown reminded Kalshi and other exchanges that a federal court has already ruled the Utah’s gambling laws apply to Kalshi and it’s illegal to keep taking “bets” from state residents.
In a statement, Kalshi described the lawsuit as “crazy overreach” and accused Brown of “playing politics. We look forward to putting a stop to this in court, just like we did in Arizona,” the company stated.
In March, Arizona Attorney General Kris Mayes filed a 20-count criminal complaint against Kalshi, alleging the company operated and unlicensed business and accepted illegal election wagers. Kalshi sued, arguing its prediction markets fall exclusively under CFTC jurisdiction.
U.S. District Court Judge Michael Liburdi granted a temporary restraining order and injunction blocking the criminal proceedings from moving forward while the federal preemption question was being litigated.
Following a U.S. Court of Appeals for the Ninth Circuit ruling in the Nevada versus Kalshi dispute, Mayes petitioned the appeals court to lift the block and allow the state’s prosecution to move forward.
The three-judge panel concluded that sports-event contracts don’t qualify as “swaps” and thus aren’t protected by federal law. A decision is pending in Mayes’s petition.
Polymarket halts new sports contracts in Michigan
Polymarket has halted offering new sports-event contracts in Michigan, becoming the fourth prediction market exchange to block state residents from purchasing the popular contracts.
In a notice to customers, Polymarket U.S. wrote that as of October 26, users located in Michigan or having a verified Michigan address can no longer open new sports positions.
“All other non-sports markets remain open for trading. Deposits and withdrawals are not affected,” the company said.
“Polymarket’s joining Kalshi, Robinhood, and Coinbase in stepping back from these unlicensed sports contracts shows that Michigan’s approach is working,” Henry Williams, executive director of the Michigan Gaming Control Board (MGCB), said in a statement. “We expect all operators to respect Michigan’s regulatory framework.”
Williams reminded prediction market or any gaming companies that if they “want to offer sports wagering to Michigan residents, you need a Michigan license.”
In June, U.S. District Judge Paul Maloney in the Western District of Michigan denied Polymarket’s motion for a preliminary injunction, ruling that the platform failed to prove it would suffer immediate irreparable harm or show a strong likelihood of success on the merits of federal preemption.
“If you’d like to share your views on the availability of sports markets in Michigan, contact the major party candidates for Michigan attorney general,” the company said.
On Tuesday, voters in Michigan will choose a new attorney general. The state’s current attorney general, Dana Nessel, is term limited. Running to replace Nessel are Democrat Eli Savit and Republican Doug Lloyd.
Kalshi expands safeguards for young traders
Kalshi will cap deposits at $2,500 per month for traders aged 18 to 20 under new safeguards introduced by the prediction market operator.
In a release, the company said the changes are meant to reduce problem trading among young adults and encourage responsible trading as the U.S. midterm elections approach. Users need to be 18 to buy a contract on Kalshi, while most sates set a minimum age of 21 to gamble, including wagering on sports.
“Like the stock exchange, Kalshi is available on to traders 18 and older,” said Luana Lopes Lara, COO and co-founder of Kalshi. “Still, we know that young adults are often new to markets and may need more education and safeguards, so we are expanding our protections for this group of users.”
Kalshi has also partnered with parent and youth safety organizations Parent ProTech and ConnectSafely to publish guides for parents on prediction market.
