Massachusetts vs. Kalshi: A Legal Clash Over Sports Gambling Laws
In a bold move that has sparked widespread attention, Massachusetts Attorney General Andrea Joy Campbell has filed a lawsuit against Kalshi, a prominent prediction market platform, alleging that it is violating state gambling laws. Campbell’s lawsuit, lodged this past Friday, argues that Kalshi’s sports event contracts, introduced earlier this year, fall under the state’s sports wagering laws, which mandate that operators obtain a license to operate legally.
The Heart of the Allegation
At the crux of the lawsuit is the claim that Kalshi’s offering of sports prediction markets amounts to unlicensed sports gambling. Campbell is seeking a court order to halt Kalshi’s sports prediction operations within the state, along with monetary and other forms of relief. The lawsuit highlights the broader issue of how prediction markets, which have gained traction in recent years, are categorized and regulated under existing gambling laws.
Prediction markets, with platforms like Kalshi and Polymarket leading the charge, have seen increased interest as they allow users to bet on the outcomes of various events, from political elections to sports. Although the Massachusetts filing acknowledges the diversity of Kalshi’s offerings, the lawsuit zeroes in specifically on its sports-related contracts.
A Legal Precedent: Binary Options vs. Sports Wagering
The lawsuit likens Kalshi’s binary options-based prediction markets to traditional sports betting, drawing parallels to well-known operators like FanDuel. According to the filing, Kalshi’s approach of allowing users to place wagers on amateur and professional sporting events mirrors licensed sports wagering operations under Massachusetts law.
“Kalshi is in the business of accepting wagers, defined as ‘a sum of money or thing of value risked on an uncertain occurrence’ on amateur and professional sporting events in the form of selling sporting event contracts,” the filing states. It further argues that these contracts fall squarely within the realm of sports wagering as defined by state law.
Federal Battle and a Familiar Face
This legal battle isn’t Kalshi’s first brush with regulatory challenges. The company previously engaged in a protracted legal dispute with the Commodity Futures Trading Commission (CFTC) over the legality of its business model. The federal regulator eventually relented earlier this year, giving Kalshi a nod to continue its operations. Interestingly, Brian Quintenz, a former CFTC commissioner and current Kalshi board member, has been nominated by President Donald Trump to head the agency, adding another layer of complexity to the unfolding drama.
The Psychological Angle: Behavioral Design Under Scrutiny
The Massachusetts lawsuit also takes aim at Kalshi’s platform design, suggesting it employs strategies akin to those used in gambling to entice users. The filing accuses Kalshi of using “behavioral design mechanisms drawn from gambling psychology” to foster impulsive behavior, exploit anticipation of rewards, and downplay financial risks. Specific design choices, such as displaying potential payouts in “bright green font” while odds are in black, are cited as tactics to encourage high-risk transactions.
Campbell underscores the importance of regulation in her statement: “If Kalshi wants to be in the sports gaming business in Massachusetts, they must obtain a license. Sports wagering comes with significant risk of addiction and financial loss and must be strictly regulated to mitigate public health consequences.”
Kalshi’s Defense: Innovation vs. Outdated Laws
In response, Kalshi has defended its operations, emphasizing the platform’s commitment to offering a “fair, transparent, federally-regulated and nationwide marketplace.” A spokesperson for the company criticized Massachusetts for opting to block Kalshi’s innovations rather than engaging in dialogue, as other states have done. “Prediction markets are a critical innovation of the 21st century, and all Americans should be able to access them. We are proud to be the company that has pioneered this technology and stand ready to defend it once again in a court of law,” the spokesperson stated.
Balancing Innovation and Regulation
The lawsuit against Kalshi raises important questions about the intersection of innovation and regulation in the rapidly evolving landscape of prediction markets. On one hand, platforms like Kalshi represent a new frontier in how people engage with markets and predictions. On the other, the potential for financial risk and addiction necessitates careful scrutiny and regulation.
As this legal saga unfolds, the outcome could set a precedent for how prediction markets are regulated in Massachusetts and beyond. The case underscores the ongoing challenge of adapting existing legal frameworks to accommodate emerging technologies and market innovations. With both sides preparing for a court battle, the industry and its observers will be watching closely to see how this clash between state regulation and technological innovation is resolved.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
