Kalshi sues Connecticut in big week of prediction markets news

Kalshi is turning up the heat on regulators again, suing Connecticut hours after the state ordered it, Robinhood and Crypto.com to halt unlicensed prediction market activity.

The action was among a wide range of developments in the controversial sector this week.

Connecticut’s cease-and-desist letters accuse the platforms of running illegal sports betting and warn they pose a “serious risk” to consumers. The letters demanded they shut down and return customer funds.

As Kalshi battles regulators across the country, it touts fresh funding and media partnerships as rival Polymarket ramps up its US rollout.

Meanwhile, the NFL publicly distanced itself from prediction markets this week, underscoring how divided policymakers and sports leagues remain over whether these products are investments, gambling or something in between.

The flurry of news all came as Fanatics beat DraftKings and FanDuel to market in the growing field with its Fanatics Markets.

Connecticut becomes new prediction markets battleground

Connecticut’s cease-and-desist letters stated the platforms pose a “serious risk” to consumers as they operate outside a regulated environment and that “a prediction market wager is not an investment”. The orders demand immediate cessation and for them to allow users to withdraw their funds. It also said failure to comply could bring additional action.

“These platforms are deceptively advertising that their services are legal, but our laws are clear,” Department of Consumer Protection Gaming Director Kris Gilman said. “They are also operating outside of a regulatory environment, posing a serious risk to consumers who may not realise wagers placed on these illegal platforms offer no protections for their money or information. A prediction market wager is not an investment.”

Kalshi responded with its lawsuit in the US District Court for the District of Connecticut. The lawsuit echoes those it filed in Maryland, Nevada, New Jersey, New York and Ohio after their regulators also sent cease-and-desist letters.

Kalshi argues it is federally regulated by the Commodity Futures Trading Commission and can offer its event trading markets nationwide.

Prediction markets legal updates

A class action lawsuit was filed against Kalshi in New York this week.

Nevada is pacing the legal battles, with a federal judge recently reversing his decision that had granted Kalshi an injunction to prevent the state from enforcing its gambling rules.

A Massachusetts court, meanwhile, will hold a prediction markets hearing next week. Massachusetts Attorney General Andrea Campbell filed a lawsuit this year against Kalshi seeking to stop its sports event markets.

There are also tribal legal battles in states like California and Wisconsin. The tribes argue prediction markets violate the Indian Gaming Regulatory Act by offering betting on tribal land. A California judge recently sided with Kalshi. The judge ruled the CFTC regulation means the event contracts are not wagers.

Kalshi, Polymarket have another big week

Kalshi wrapped up its third round of fundraising this year, announcing a $1 billion round on Tuesday. The new round gives Kalshi an $11 billion valuation. Investors include Sequoia Capital, Andressen Horowitz, Meritech Capital, IVP, ARK Invest, Anthos Capital, CapitalG and Y Combinator.

“We’re in a massive market with a massive opportunity,” Kalshi CEO and co-founder Tarek Mansour told The New York Times. “We have to scale up to rise to that opportunity.”

The $11 billion valuation more than doubles the $5 billion figure from a $300 million round in October. The fundraising also comes as Kalshi partnered with CNN and CNBC, which will now showcase “real-time insights from Kalshi”.  Axios reported the CNN deal Monday, while CNBC announced its deal on Thursday.

“Prediction markets are rapidly shaping how investors and business leaders think about important events,” CNBC President KC Sullivan said. “Kalshi’s data will serve as a powerful complement to CNBC’s reporting and help people stay better informed about the world around them.”

Following a multibillion-dollar fundraising round of its own earlier this year, Polymarket began a limited rollout this week to more than 200,000 US users on a waitlist. The platform was in a beta phase prior to this week. On Sunday, CBS “60 Minutes” aired a feature on Polymarket.

Polymarket’s investment round was from the owner of the New York Stock Exchange.

NFL commissioner stays out of prediction markets

Previously, the National Hockey League made Kalshi and Polymarket official partners of the league.

At Genius Sports Investor Day this week, NFL Commissioner Roger Goodell said he will not be following down the NHL’s path, at least for now.

“That’s not something we’re about to enter into. We are going to see how things play out, from a regulatory standpoint. There are a lot of legal challenges going on right now,” Goodell said. “We’d like to be first in the market in a lot of things, but a lot of things we’re willing to say, we’re gonna let things play out, we’re gonna decide: Is this something we want to do?

“The risk to the brand is something that we take very seriously, and we won’t risk the brand in something until we feel confident that we can do it.”

Pat Evans

Pat covers the legislation and regulation of online gambling in North and South America, having covered the US sports betting industry extensively since 2019.