Washington Court Orders Kalshi To Pause Several Markets

Kalshi's losses are starting to pile up.

A Washington Superior Court has granted a preliminary injunction to the state, forcing the operator to shut down markets involving sports, politics, and other categories deemed against the public interest. 

Like in other recent rulings, the Washington court assumed that prediction market transactions are a form of “swaps,” which are protected under the Commodity Exchange Act. However, the law also sets several categories as being “against the public interest.” 

This includes wagers on war, gaming, terrorism, and more, but a Special Rule allows the Commodity Futures Trading Commission to determine which markets violate this provision. The federal regulator has argued this grants them the right to preempt state laws, including those involving gambling.

In the ruling, the court acknowledged the CFTC's argument, but it ruled the Special Rule is meant to help the CFTC stop dangerous markets, not preempt state laws.

“While one may argue that the “Special Rule” supports the contention that Federal preemption occurs because it allows the CFTC to determine that certain agreements, contracts or transactions, including those involving gaming, are contrary to the public interest, this provision of authority is not enough to expressly direct Federal preemption,” the ruling reads. “The language referencing ‘activity that is unlawful under State law’ demonstrates that States retain the authority to determine what is unlawful under applicable State law.”

Will the CFTC Step In?

Kalshi’s loss in Washington comes after similar rulings from Michigan, Nevada, and New York. While that is a troubling sign for the industry leader’s legal argument, the CFTC has ordered Kalshi to ignore rulings in Michigan and New York. It has used its emergency powers to do so, putting prediction markets operators in a tricky spot.

While this support has been a boost, the regulator is currently reviewing certain “mentions” contracts being offered by Kalshi. The action follows a recent DraftKings earnings call, where Kalshi offered mention markets, including one asking customers whether its name would be mentioned on the call.

 DraftKings CEO Jason Robins didn’t call out the operator by name during the call, but did speak on the dangers of markets involving mentions and earnings calls. 

While Kalshi is unlikely to be penalized by the regulator, the review could signal that the CFTC’s support for the industry is faltering under pressure from the legal system and public opinion.