Nevada Gaming Control Board members made one of their strongest rebukes to date against prediction markets this week, but the co-founder of Kalshi, the New York-based company considered pace-setter for the industry has no plans to retreat from its legal fight with Nevada.
Also regulators in New Jersey asked the U.S. Supreme Court to weigh in on the battle between prediction markets and state gaming regulators.
In a statement issued at Wednesday’s Nevada Gaming Control Board meeting in Carson City, Chairman Mike Dreitzer said no matter what terminology prediction markets use to describe their business, it’s a form of gambling – and it’s illegal for companies to engage in it within Nevada if they’re not licensed.
“These sports prediction contracts are indistinguishable from sports bets,” Dreitzer said. “As the (9th Circuit appeals) court said, and I quote, ‘Placing sports bets even when called by another name is still gambling.’ The simple fact is anytime you risk money on the uncertain outcome of a sporting event, that’s a bet. End of story.”
Dreitzer and board member colleagues George Assad and Chandeni Sendall spent about 10 minutes prior to undertaking agenda business Wednesday to praise the ruling rendered by the 9th Circuit Court of Appeals on Aug. 28.
“So for now, the 9th Circuit has strongly supported Nevada’s position on sports event contracts, providing us a full and thoughtful decision on the matter, and we acknowledge this important victory,” he said.
Kalshi’s view
But Kalshi’s co-founder, in an exclusive interview with the Review-Journal last week, said the company’s business model is financial market trading, not gambling, and it makes more sense for a federal overseer instead of multiple state and tribal jurisdictions that have policy and regulation differences.
“It just doesn’t work with our model and it’s not what Kashi is about,” said Kalshi Chief Operating Officer Luana Lopes Lara, who founded the company with CEO Tarek Mansour, whom she met while the two were students at the Massachusetts Institute of Technology. “And that’s why a federal exchange, like financial exchanges, have always been regulated federally.”
The Appeals Court ruling also clearly stated that state gaming regulators have no business overseeing financial exchanges.
Underage participation
Dreitzer also said he was concerned about underaged participants in prediction markets.
“I am deeply concerned about 18-, 19-, and 20-year-olds who gamble on sports. Losses at that age may come out of tuition, rent, books or other necessities,” Dreitzer said. “We should be especially careful when gambling is presented as investing because it is not investing. Betting on tonight’s game is not investing for the future and we should not blur the distinction for young people making these kinds of important decisions,” he said.
He said CNN recently reported that 18-, 19- and 20-year-olds have made $4 billion in prediction market sports trades since the beginning of the year. “and that doesn’t even include the very heavily bet upcoming football season.”
But Lara contends that Kalshi has better protections in place against underage participation than many states.
“Obviously, minors cannot trade on cash whatsoever,” Lara said. “We use a lot of different checks and balances and sign up from ID, Social Security number and all of that. We have surveillance on top of that. We use a lot of different providers that use AI machine learning to look for other indications that people are minors to make sure that none of them come in. And we know every month, the amount of minors that try to sign up and we block them.”
One other criticism state gaming regulators note is that Kalshi goes untaxed when operating in a state.
Lara disputes that.
“They are able to tax us,” she said. “And I think there have been states that already are proposing taxes on prediction markets and there’s nothing that stops them from taxing us.”
Supreme Court petition
On the same day as the Control Board meeting in Nevada, New Jersey was opening the door to a U.S. Supreme Court review.
New Jersey Attorney General Jennifer Davenport filed a petition for a writ of certiorari with the Supreme Court asking it to resolve conflicts between other appelate courts on the question of whether states and tribes can prevent prediction markets from operating in their respective jurisdictions.
“Litigation regarding these questions has erupted across at least 20 states, with dozens of active suits pending and the gambling laws of several states currently enjoined by the federal courts,” Davenport’s office said.
“This is the first certiorari petition filed with the U.S. Supreme Court regarding the legality of this business model — of offering sports wagers self-certified by Kalshi with the Commodity Futures Trading Commission without following state laws.”
It’s unclear if and when the Supreme Court would take up the question.
Gaming industry analysts have said they don’t expect the high court to weigh in until late this year or next year.
Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on X.
