Kalshi Slapped with Another Class-Action Lawsuit, As Legal Challenges Continue

Kalshi is under increasing pressure to discontinue its sports event contracts in jurisdictions that already have sports betting laws. However, the prediction market platforms have repeatedly and pointedly argued that this is not really something it is obligated to do, seeing how its products are regulated by the CFTC, and not local sports betting laws.

New Lawsuit Seeks to Attack Kalshi’s Claim about Not Being a Betting Platform

Kalshi has sought to portray its products as a financial asset, and therefore outside the scope of sports gambling regulators. Nevada, Massachusetts, Missouri, and a host of other states beg to differ. Now, a new class-action lawsuit was filed in the Southern District of New York last week.

What is different about the newest legal challenge is that the plaintiffs are now specifically trying to frame the dialogue in a way that “exposes” Kalshi’s products as illegal, insisting that the platform is running an “unlicensed sportsbook” which is masquerading as a financial product.

Kalshi has repeatedly denied this and argued that it offers a new, better product that does not involve odds. The lawsuit claims that 90% of the platform’s total volume is now generated from sports event contracts, however, amounting to $2 billion.

So far, only seven plaintiffs have joined the lawsuit, as reported by Daniel Wallach, a legal expert, who has been talking about and commenting on developments within the prediction market space, explaining the details of the proceeding.

In the new lawsuit, the plaintiffs also allege that Kalshi was outright offering an illegal gambling product, used deception, and violated gambling laws to market its products and bring them to consumers.

 Kalshi, though, has been keen to exemplify the difference between its own product, leaning heavily into the CFTC angle, and traditional sportsbooks. By not setting the odds, Kalshi has no control over the estimated probability, which is based on users placing predictions against each other and generating profit based on either side backing one outcome.

However, the new lawsuit also seeks to address this claim. The complaint specifically argues against this way of formulating things, suggesting that users are made to bet against each other rather than “the house.”

Another point worth highlighting is the so-called alleged “other traders,” which the complaint suggests are Kalshi’s own people who place predictions to balance out the market once it keels too heavily against the platform’s own predictions.

Mainstream Companies Withdrawing from Sports Betting to Launch Prediction Markets

Yet, the market is in a strange place as of right now. FanDuel and DraftKings have voluntarily surrendered their Nevada licenses. Around the same time, a Nevada judge told Kalshi to discontinue offering sports event contracts locally. Both companies seem to intend to pursue prediction markets even if it means losing one of the arguably most valuable licenses in the country.

At the same time, Underdog pulled out of Missouri only a few days before the official launch, similarly citing a decision to focus on prediction markets at a time when local regulators have grown openly belligerent against the sector.