Michigan Takes Aim at Sports Betting Contracts and Kalshi
Michigan becomes the latest state to step up to the plate against Sports Betting Contracts.
Michigan attempts to hold back tide of Sports Betting Contracts. © William Duggan, Unsplash
Key Facts:
- Sports Betting Contracts are being offered as an asset class to be traded
- Companies like Kalshi now offer these futures exchange contracts on many sporting events.
- They insist it’s not gambling and that they meet all Federal rules for Futures trading.
- Michigan and many other states disagree.
States continue their war of words with future events contract trading companies, which are encroaching on various sports betting activities typically licensed and regulated by the states. But these companies insist that their wagers on the outcomes of MLB games or the over-under on Basketball games are federally licensed futures contracts under the purview of the CFTC and not the states in which they are being offered.
Crazily, they have found no legal means to slow down companies like Kalshi, which offers these contracts, and the CFTC has just shrugged its shoulders.
In another sign of Federal capitulation earlier this week, the CFTC stood down on its appeal of Kalshi taking bets on the Presidential Race last November. This appears to open the way for future bets on who will win the Georgia Senate race or who will be the next governor in Ohio.
Kalshi also notched legal wins at the State level last month in New Jersey and Nevada, where judges allowed the company to continue peddling its “prediction” contracts while it appealed state regulators’ rulings that had issued cease-and-desist letters meant to shutter its operations in both states.
Finally, I am persuaded that Kalshi’s sports-related event contracts fall within the CFTC’s exclusive jurisdiction and am unconvinced by defendants’ arguments to the contrary.– Judge Edward Keil, US District Judge, US District Court Opinion: Kalshi EX VS Flaherty
While both cases will continue, early opinions from Federal judges seem clear in holding that the Supremacy Clause of the Constitution, as well as the Commodity Exchange Act of 1936, give the CFTC under 7 U.S.C. §2(a), exclusive jurisdiction of all swaps and sales of contracts for future delivery.
They also reason that the CFTC could have chosen to act to limit harm from what are still essentially “sports bets,” but has chosen not to, and the States have no legal power to force their hand on the matter.
That hasn’t stopped many states with lucrative licensed sports betting markets in place from attempting to act. Among Maryland, Illinois, Montana, and Ohio, Kalshi hasn’t yet shied away from a courtroom brawl.
The company has already brought another suit against the Maryland Lottery Commission for its recent cease and desist filing against the company. It remains to be seen if another Federal judge somewhere will read the law any differently.
Michigan is yet the next state to make its voice heard, filing a strongly worded letter with the CFTC, which, after all, seems currently the only party that could rein in Kalshi and its competitors.
They lay out their belief that these types of bets are outside the Michigan Lawful Sports Betting Act of 2019, and that the state’s four fundamental standards of licensed and regulated gaming are being flaunted.
The state oversees those to ensure all entities offering gaming are suitable, with no criminal backgrounds, and have a solid financial footing. Responsible Gaming programs that the state believes limit harm to those susceptible to problem gaming.
Consumer protections limit fraud and ensure that those who choose to bet with these operators have some recourse to their funds should there be a dispute. And event integrity means the state can do everything in its power to ensure that whatever is being bet on is fair and not rigged.
Interestingly, the state stopped short of issuing a cease and desist, and that is almost certainly due to Kalshi not shying away from a fight. Michigan probably assumes, and rightly so, that a cease and desist letter would be met with a lawsuit, which it isn’t yet sure it could win.
It’s best to wait and see how the issue plays out in a few more District courthouses while still registering your displeasure with the only federal agency that could step in and help.
It’s probably here that we should mention that Brian Quitnenz, the person tapped by President Trump to be the new Chairman of CFTC, is a former Kalshi board member. And that the President’s son, Donald Trump Jr., was named by Kalshi as a strategic advisor in January of this year, so perhaps Michigan shouldn’t be holding its breath for a reply.
