A Connecticut federal court (Hartford) has ruled against Kalshi in the prediction exchange’s efforts to obtain an emergency injunction pending appeal that would delay the state’s enforcement measures against its sports contracts.
The federal court’s official ruling was issued over the weekend. In it, Judge Vernon D. Oliver states that Kalshi “has not met its burden of demonstrating that the balance of the equities and public interest factors weigh in its favor.”
Gaming activities within the state of Connecticut are licensed and regulated by the Department of Consumer Protection (DCP). The state agency is claiming that Kalshi’s sports-based event contracts equate to “unlicensed sports wagering” that falls under the department’s regulatory purview.
Although legal prediction market platforms in the United States are regulated by the Commodity Futures Trading Commission (CFTC), that has not stopped multiple states from pursuing legal action against Kalshi and other prediction exchanges.
If Connecticut authorities are successful in their endeavors to sway Kalshi, the exchange will be forced to geofence its sports contracts from all residents and visitors who are located within the state.
Kalshi’s official status as a federally regulated prediction market has not shielded it from geofencing in states that are battling in court to keep sports and other contracts out of their jurisdiction. Recently, Kalshi liquidated pending contracts held by individuals located in Michigan, despite an emergency order issued by the CFTC that forbade them to do so.
The country’s most prominent CFTC-regulated prediction market is also blocked in the states of Nevada and Massachusetts, with an imminent geoblock scheduled to go into effect in Washington. Such a prospect may negatively impact the company’s valuation as it consistently finds itself on the wrong side of state and federal court rulings.
Unlike state-licensed sportsbook apps that offer products in which customers wager “against the house,” prediction markets are technically “peer-to-peer” trading platforms. As such, they require broad market access in order to secure the liquidity needed to create individual markets.
The reduction in the number of states in which prediction platforms can operate has a legitimate impact on overall liquidity. However, states like Connecticut, Washington, Massachusetts, and Nevada aren’t nearly as relevant to liquidity pressures when compared to more populous jurisdictions such as New York and California.
The recent ruling by the Connecticut federal court means that Kalshi must appeal to the US Court of Appeals for the Second Circuit, which is located in New York City. There, the prediction exchange will hope for a favorable ruling that allows it to continue normal operations in Connecticut.
That Circuit Court ruling could be handed down in a matter of days to weeks in response to Kalshi’s emergency, fast-tracked application. If the Second Circuit rules against Kalshi, the company will have no further legal recourse to block Connecticut’s enforcement until one or more related cases are heard by the US Supreme Court.
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