For years, prediction market websites have been accepting what many believe are sports bets while skirting local and federal laws in the process. These sites sell event contracts that pay out to those who risked money on the correct outcome.
Sound familiar? That’s because it works exactly the same way sports betting does, but under a different title.
An online provider, Kalshi, has further blurred these lines by selling contracts on future sporting events. This website is currently selling these sports contracts in all 50 US states, effectively providing local sports betting even in staunch anti-gambling districts like Utah.
Kalshi has received cease and desist letters from several states, but has refused to comply and continues to sell his product nationwide.
“The purchase of the contract is indistinguishable from the act of placing a sports wager…”
Exerpt from a letter cease-and-desist letter from the Maryland Lottery and Gaming Control Commission to Kalshi
Domestic sports betting operators are legally required to comply with the gambling laws in any state where they offer services. This includes a licensing fee and a gaming commission or advisory board approval.
Kalshi has taken the matter to court, and the judicial system has sided with them so far in Nevada and New Jersey.
The CEO of Kalshi, Tarek Mansour, argues that selling prediction futures is no different from trading on the stock market and making gains. Any monies gained by prediction market “investors” are supplied by the investors themselves.
The company makes a profit based on transaction fees for each purchase. The number of shares that are purchased on either side of the outcome market will impact the potential returns on investment.
Sportsbooks work in a similar manner. As wagers come in on either side of an outcome, the odds will shift until money is coming in equally on both sides. Sports betting sites are in the business of breaking even if they are operating perfectly, with any profits being collected on the juice that is attached to the odds.
Still, online sportsbooks are on the hook if a lopsided bet wins, and most wagers were placed on the winning side. Prediction market sites like Kalshi are not faced with this potential, and simply collect on each outcome they offer.
Another issue is the minimum age to purchase prediction markets. Most legal sports betting states require a minimum age of 21 to place a wager, but a few are 18-friendly.
Kalshi accepts customers across the USA at the age of 18.
The issue is still being sorted out in numerous courts and will likely require federal intervention for an ultimate decision.
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