By the end of the day June 17, it felt as though the entire gaming world had descended on the U.S. Court of Appeals for the Third Circuit to fight Kalshi’s right to make use of sports events contracts.
A total of five amicus briefs were filed in support of New Jersey’s legal case against the New York-based prediction market. Kalshi has been operating in New Jersey through a preliminary injunction it obtained in response to a cease-and-desist order issued by the state in March.
This week’s filings in support of the state’s case were submitted by the following, in order:
● A coalition of anti-gambling groups, including Stop Predatory Gambling, Texans Against Gambling and the Association of American Physicians and Surgeons.
● A coalition of tribal organisations, including nine groups and 60 individual tribes.
● A coalition of attorneys general from 34 US states, Washington, DC and the Northern Mariana Islands.
● The Casino Association of New Jersey.
● The American Gaming Association.
The New Jersey case is the first involving prediction markets to reach the appellate level since the Commodity Futures Trading Commission filed its appeal of election betting last year, which was ultimately dropped.
This step-up in the court system is a chance to appeal to a new audience, which is increasingly important as stakes rise. While the filing by the anti-gambling groups was somewhat of a surprise, the other four all came from parties that have already waded into this debate in various ways.
“The amici are doing exactly what they’re supposed to: explaining the importance of this case,” gaming attorney Andrew Kim told The Closing Line. “Unlike judges in the district courts, the Third Circuit has a more complete picture of the seismic regulatory upheaval Kalshi’s legal position would unleash.”
The brief on behalf of dozens of states was submitted by Nevada Attorney General Aaron Ford and Ohio Attorney General Dave Yost. In addition to New Jersey and Nevada, Kalshi is also involved in a lawsuit against Maryland, which is included in the filing. Ohio was among the group of states sending cease-and-desist orders to Kalshi this spring, but so far it has not been involved in legal action against the platform.
Overall, the group of states included in the brief spans the entirety of the U.S. and features the full range of gaming markets. Utah and Hawaii, which have no legal gaming, are featured alongside sizable markets like New York, Pennsylvania, Illinois, Michigan and Louisiana.
“Online sports betting, while convenient and entertaining for many, comes with life-altering consequences for some,” the brief reads. “Thus, depriving the States of the power to regulate naturally increases the dangers to a vulnerable population of citizens. Because no federal law requires that potentially devastating result, the amici states urge reversal.”
As with the states, the list of tribes and tribal groups participating in their respective brief is expansive. In addition to the 60 tribes, the groups include
the Indian Gaming Association, National Congress of American Indians, California Nations Indian Gaming Association, Arizona Indian Gaming Association, Washington Indian Gaming Association, Oklahoma Indian Gaming Association, Native American Finance Officers Association, United South and Eastern Tribes Sovereignty Protection Fund and Tribal Alliance of Sovereign Indian Nations.
Their filing is notable in that it is the first time Indian Country has entered into the prediction market legal debate. Tribal interests had previously submitted public comments to the CFTC and participated in a call with acting CFTC Chair Caroline Pham in late May. That meeting was reportedly largely unfruitful, which could have pushed tribes to get involved in litigation instead.
“KalshiEX LLC’s (“Kalshi”) unlawful and unfair entrance into the gaming market has adversely impacted tribal gaming revenue and the benefit of tribes’ bargained-for compacts,” the brief reads. “Additionally, by offering its so-called sports event contracts under the guise of commodity trading pursuant to the Commodity Exchange Act (“CEA”), Kalshi impedes tribes’ inherent sovereign right to regulate gaming activity on Indian lands.”
The two trade groups to file briefs – the AGA and one representing New Jersey casinos – took different approaches to emphasise the impact that the growth of prediction markets could have on their members, financial and otherwise. As the home team, the New Jersey association understandably highlighted its state’s casino interests, which are among the biggest outside of Nevada.
“If Kalshi wins this appeal, it is positioned to leverage its considerable influence to sic the federal government on casinos that comply with state law,” the association wrote. “Kalshi’s suit is thus not just an effort to circumvent New Jersey law. It is a stalking horse for Kalshi to displace state regulators while crushing competitors.”
The AGA, as a national group with members from the entire gaming industry, took a more measured approach. Nonetheless, it too argued that Kalshi’s “disruptive” rise and the CFTC’s non-action have been a bit too hazardous.
“Given the particular expertise and commitment of resources necessary for effective oversight of sports-betting markets, AGA is concerned that the Commodity Futures Trading Commission (“CFTC”) is not equipped to carry out the regulatory role traditionally played by state governments,” the AGA wrote. “More broadly, AGA and its members have a strong interest in orderly application of federal law, which consistently complements and facilitates state regulation of sports wagers – rather than preempting it as Kalshi asserts.”
The brief from anti-gambling interests is perhaps the most unexpected and illustrates how prediction markets have galvanised opposition from an unlikely collection of legal allies.
The two gambling-specific groups are less surprising than the Association of American Physicians and Surgeons, whose members “see first-hand the harm being caused by the growing pandemic of commercialised gambling”, the filing said. Collectively, these groups see Kalshi and other federally legal prediction markets as a huge threat to responsible gambling and harm minimisation efforts.
“The public interest is strongly against the preliminary injunction issued below,” the brief said. “The district court devoted merely one cursory sentence to this factor, without considering the immense public harm to be inflicted by unregulated commercialised gambling. The rate of suicide by gamblers is 15 times the overall population.” According to InGame, a Kalshi spokesperson said in a statement that it was “no surprise that individual states would take this position”.
