Utah just won a big round against prediction market operator Kalshi. A federal judge ruled Tuesday that the company can’t hide behind commodities law to dodge the state’s anti-gambling rules.
U.S. District Judge Robert Shelby ruled Tuesday that the Commodity Exchange Act does not preempt Utah from enforcing its gambling laws against Kalshi's sports-based markets, rejecting the company's argument that federal oversight of its exchange shields it from state enforcement. Federal regulation by the Commodity Futures Trading Commission (CFTC), he found, doesn't immunize Kalshi's event contracts from Utah treating them as sports gambling.
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Kalshi sued Utah in February, saying the state was preparing to block its operations under the state’s anti-gambling laws.
Kalshi and similar prediction markets let users trade yes/no contracts on real-world events. Each “yes” has a matching “no.” If the event happens, “yes” pays; if it doesn’t, “no” pays.
The company said its markets are federally regulated financial products, not betting, because users trade with each other rather than against the house. It argued federal law gives the CFTC exclusive authority over its business and bars Utah from shutting it down.
Kalshi asked the court to block Utah from enforcing its anti-gambling laws against its sports event markets.
Shelby disagreed, finding that federal law does not override Utah’s ability to treat those contracts as gambling.
“The court concludes the federal law relied upon by Kalshi does not preempt Utah’s ability to enforce its anti-gambling laws,” Shelby wrote. “It would be inconsistent for Congress to allow States to regulate their gambling laws but to simultaneously require States to provide citizens access to every event contract, including those that constitute gambling under State law.”
Kalshi currently offers several markets tied to Utah, including election outcomes, pro soccer and Utah Jazz games and which in-state college football teams would make the postseason playoff. Those, Utah argued, are exactly the kinds of sports props that violate its constitution.
Kalshi has also preemptively sued other states to fend off anti-gambling enforcement.
On Monday, Kalshi CEO Tarek Mansour said the numerous legal battles involving his company are just growing pains any disruptive startup has to go through.
“I think the more interesting thing that's at play here is that you have an industry, the prediction market industry, that is disruptive, that is growing fast, consumers are adopting it, and it's threatening a legacy incumbent industry that is unhappy about that," Mansour said during an interview with CNBC.
"That has played out over and over. It's played out with taxis and Uber. It's played out with hotels and Airbnb.”
Utah lawmakers, meanwhile, moved this year to crack down on prop bets and daily fantasy “pick ’ems” used by companies like DraftKings and FanDuel to skirt the state’s gambling ban. HB 243 added prop bets to the legal definition of gambling.
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