Leading prediction market operator Kalshi restricted access to event contracts in sports, politics, and other industries following a recent court decision.
A court order ruled that Kalshi’s prediction markets violated state gambling laws and were therefore illegal. The decision was reached by King County Superior Court Judge John McHale and confirmed by The office of Washington Attorney General Nick Brown last Thursday.
Kalshi prediction markets blocked in Washington
McHale’s decision required Kalshi to stop advertising, conducting, or facilitating business related to contract trading in sports, elections, politics, entertainment, culture, tech, science, and mentions. That does not quite cover all of Kalshi’s markets and notably omits those related to commodities, climate, and finance.
“This does not include all the wagers offered on Kalshi, but it includes a substantial part of their business, which in recent years has been increasingly driven by sports wagers,” a press release from the Washington AG’s office said.
The judge also directed Kalshi to implement IP and residency-based geofencing by Aug. 19, preventing users in Washington from trading banned contracts. Kalshi is also required to install a “multi-source” geofencing system by Sept. 2.
Geolocation company GeoComply, which has a large presence in the world of sports betting, will handle the second requirement by the state. A failure to implement this system by the outlined date without a relevant reason could result in daily fines of $120,000.
Kalshi users began reporting restricted access in Washington on Wednesday. An official announcement confirming the restriction was never released by Kalshi, which has continually argued that its prediction markets should be federally regulated by the Commodity Futures Trading Commission, not local or state governments.
Setting a legal precedent
Although Kalshi has largely been successful in its legal disputes with non-federal entities, a series of recent court losses has left it and other operators of prediction markets, such as Polymarket, crypto.com, and Underdog, exposed to possible enforcement.
Additionally, Kalshi is now restricted in some capacity in three states: Michigan, Nevada and Washington.
Washington’s latest actions were prompted by AG Brown suing Kalshi in March, alleging that the operator was providing illegal gambling services to customers. Judge McHale decided that the state had done enough to “[show] a likelihood that Kalshi’s conduct” violated state gaming laws, which he ruled were not preempted by the Commodity Exchange Act or the U.S. Constitution’s Supremacy Clause.
This line of thinking is parallel to other recent decisions reached in Connecticut, Michigan, New York, Utah and Wisconsin.
Notably, ruling that one side did or did not prove a likelihood to succeed in merit does not necessarily mean that gaming enforcement is explicitly allowed. Instead, it could mean that a preventative measure, such as an injunction, was not approved and left the door open for possible enforcement.
“We respectfully disagree with the court’s decision and are considering all legal options,” a Kalshi spokesperson said last week.
Kalshi processed an estimated all-time high $37.7 billion in notional trading volume during July, thanks largely to the FIFA World Cup. Although prediction platforms are currently experiencing the same “dead period” as sportsbooks, they are expected to show an increase in activity when the NFL season begins next month and as the midterm elections approach.
The Trade Handle Prediction Markets Take
Washington becoming the third state to at least partially restrict prediction markets is an important step. Prediction operators have largely controlled the legal momentum over the last year, but a recent series of victories at the state level has suddenly made this a more even fight. Additional legal verdicts reached over the following months will set the course for the ongoing disputes across the country.