New York is the latest in a long line of states to say “enough is enough” to so-called prediction markets. On Thursday, New York Attorney General Letitia James filed suit against Polymarket for running an “illegal gambling operation,” two months after she filed a similar lawsuit against Kalshi. Hours later, Polymarket sued back, claiming that the state may not enforce gambling laws against it. The next day, in a dispute with Ohio and Tennessee, a federal district court ruled in Kalshi’s favor on the matter of jurisdiction, saying that it was a federal matter, contradicting a ruling by the 9th Circuit earlier this summer that gave Nevada authority over the matter.
These are just the latest salvos in a long-running dispute pitting states against the corrupt Trump administration. It’s another example of how the “For Sale” sign in front of the White House is enabling the worst players in American life.
Prediction markets emerged in the late 2010s, thanks to the Supreme Court rolling back a federal ban on sports gambling and states rushing to legalize it, technological advances that put casinos in our pockets and a loophole in federal commodities law. Prediction markets utilize this loophole, which appears to allow them to claim they operate as speculative financial exchanges, or financial swaps, so as to evade state regulations on games of chance and betting.
Kalshi previously advertised itself as the “First Nationwide Legal Sports Betting Platform.”
But if purchasing a “designated contract market” transaction saying the New York Yankees will win a game against the Baltimore Orioles sounds like gambling to you, you are hardly alone. In fact, Kalshi previously advertised itself as the “First Nationwide Legal Sports Betting Platform.” As the New York Times once put it, “Is Sports Betting Illegal in Your State? Not if You Call It a ‘Prediction Market.’”
The Biden administration took a dim view of all this. The Commodity Futures Trading Commission, which regulates derivatives markets, introduced a rule to ban political, sport and war-related event contracts. The Biden-era CFTC also took several actions against prediction markets — including banning Kalshi from listing “contracts” on which political party would control Congress and opening an investigation into Crypto.com for sports “contracts.” Biden’s Justice Department investigated Polymarket and its CEO, Shayne Coplan, for allegedly letting U.S. users bet on unlicensed election contracts, despite a court settlement with the U.S government that required the company to cease operations of such contracts.
All that changed when Donald Trump returned to the White House. Kalshi brought on Donald Trump Jr. as “strategic adviser” and gave him a stake in the company that is now worth $22 billion. Not to be outdone, Polymarket counts his venture capital firm as a funder and one of its top equity holders — and Trump Jr. sits on Polymarket’s advisory board.
Meanwhile, the president nominated Michael Selig — an attorney who previously represented cryptocurrency and prediction market clients — as chair of the CFTC. At the same time, President Trump made no public effort to nominate any other Republican or Democratic commissioners to fill out what is normally a five-member commission. This gave Selig unilateral control over the CFTC.
What happened next should come as no surprise. Historically, while states have held jurisdiction over gambling, the CFTC under Selig has taken a number of unprecedented steps not only to regulate prediction markets but to cut the states out of the equation entirely. This year alone, the CFTC has sued nine states with Democratic governors to stop their efforts to crack down on the industry (while ignoring similar pushback from some Republican governors).
On two occasions, the New York Times reported, “the agency has instructed the prediction markets to sidestep court orders, invoking emergency powers that it hadn’t used for decades.” The CFTC also dropped its appeal in the case against Kalshi for election betting and its rulemaking regarding event contracts. The companies themselves are even advising the CFTC on potential regulations. And, of course, Trump claims that it is “critically important” for the commission to maintain exclusive authority over the industry.
The industry is moving aggressively to take advantage of the legal confusion. Kalshi and Polymarket are securing deals with sports leagues and running expensive and relentless ad campaigns with big-name actors and athletes.
Earlier this year, Minnesota became the first state to ban the operation of prediction markets. The very next day, the CFTC filed a lawsuit against the state, and a federal judge paused the law while the case continued. Fourteen states are currently weighing legislation to regulate the industry, and at least a dozen states have sent cease-and-desist letters (or sued) to halt prediction market operations for violating state gambling laws, consumer protection laws or state constitutions. An eventual date with the Supreme Court seems likely — in fact, earlier this month New Jersey asked the justices to resolve the jurisdiction issue.
The industry is moving aggressively to take advantage of the legal confusion. Kalshi and Polymarket are securing deals with sports leagues and running expensive and relentless ad campaigns with big-name actors and athletes. One recent Polymarket ad featured LeBron James and Spike Lee among more than a dozen celebrities. The companies also work with social media influencers and content creators, including by allegedly paying some of them to post fake big-dollar wins. The goal, it seems, is to ultimately become so popular that policymakers won’t challenge it.
Thankfully, states like New York are refusing to give up the fight. That’s in part because the harms from prediction markets are as easy to see as their commercials. The markets have incentivized rampant insider trading and manipulation from people in the know, including a White House teleprompter operator who was forced out of his job after using his inside knowledge to place bets on Trump’s speeches. There were also suspiciously timed and correct bets on who would join the Super Bowl halftime show. The companies allow people to bet on abhorrent events and scenarios like wildfires, wars and clinical trials for diseases like cancer.
And gambling more broadly — regardless of what term companies use for it — itself has major consequences, both on an individual and a societal level. These include bankruptcy, increased debt collection and the erosion of public trust. Prediction markets are no different because, again, they are gambling. A strong majority of people who place a bet — oops, we mean purchase a contract — on a prediction market will lose money. Kalshi is even asking for the CFTC’s blessing to let people “buy contracts” on its platform with borrowed money.
As the legal battle between states and the federal government continues to heighten, it would be great if the Supreme Court stepped in and deemed prediction markets gambling in disguise. Ultimately, members of Congress should try to see past the flood of money flowing into the political action committees of members of both parties from the prediction market industry, and ban them outright. In the meantime, let’s applaud Letitia James and other state-level officials who continue the fight against these platforms.
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