Connecticut has sued Kalshi in state court, potentially paving the way for a ban on the platform’s sports contracts. However, the court denied the state’s request for an ex parte temporary restraining order, which would have banned Kalshi’s sports contracts in the state without giving the prediction market a chance to respond.
The lawsuit was filed in the Connecticut Superior Court Wednesday, and the request for the immediate temporary restraining order was denied the same day. The court will still consider the state’s request for an injunction that would also ban Kalshi’s sports contracts.
With no order having been issued yet, Kalshi has been able to buy more time by requesting that the case be heard in federal court. Getting a case heard in federal court requires a higher standard than is needed to issue an injunction protecting a business from state-level enforcement, which Kalshi already failed to achieve with regard to Connecticut. So far, the prediction market has not been successful in any of its attempts to have a state-level lawsuit moved to federal court.
The lawsuit was made possible after the U.S. District Court for the District of Connecticut rejected Kalshi’s request for an injunction shielding it from state enforcement. In one of the most comprehensive rulings against Kalshi to date, the judge rejected virtually all of Kalshi’s legal arguments, going far beyond the standard needed to make a decision.
Kalshi is appealing the District Court opinion to the U.S. Court of Appeals for the Second Circuit (which is also hearing an appeal against a similar decision from New York), but the Second Circuit determined that state enforcement can go ahead while it considers the appeals.
State says Kalshi operates illegal gambling
In its complaint, the state said that Kalshi is engaged in illegal gambling, defined in Connecticut law as “risking any money, credit, deposit or other thing of value for gain contingent in whole or in part upon lot, chance or the operation of a gambling device,” outside of the “narrow exception” provided for sports betting by the state lottery and two Native American tribes.
Event_Contracts_Swap_basedThe state also noted that in Connecticut, any person who loses money in an unlawful wager may sue the winner for their losses.
It went on to note that Kalshi allows users aged 18 or older to bet, while Connecticut requires a minimum age of 21, and that it allows for betting on in-state college teams, which is prohibited in Connecticut.
The state attempted to get ahead of Kalshi’s arguments that it offered a federally regulated product that was outside of the reach of Connecticut gambling laws. It said that Kalshi’s sports event contracts are “nothing like” traditional event contracts on subjects like the weather, which exist to hedge risk.
“Rather than pertaining to the occurrence of events of economic significance and allowing for legitimate risk hedging and information exchange, Kalshi’s sports event contracts relate to the outcomes of, or happenings during, sporting events, which outcomes or happenings have no economic significance other than that people bet on them.”
In a press release, Connecticut Attorney General William Tong said Kalshi is not immune from state sports betting laws.
“Sports event contracts are no different than sports betting and are not magically shielded by federal law from Connecticut’s commonsense consumer protection laws,” Tong said. “These laws exist for a reason — to protect minors, to prevent problem gambling, to ensure your money is safe and your personal information is protected. None of that is happening now on Kalshi, and we’re suing to put a stop to it.”
Connecticut asking for monetary damages
Connecticut is asking for an injunction preventing Kalshi “from further offering any sports wagering service or other conduct for which a license is required,” as well as disgorgement of revenues Kalshi has received from sports betting in Connecticut, plus additional restitution payments and civil penalties.
The state said that “the amount in demand exceeds fifteen thousand dollars,” but this threshold is simply the minimum level to ensure the complaint is heard by a regular court instead of a small claims court. The actual damages sought would likely be orders of magnitude larger.
Kalshi doesn’t break down its revenue by state, and a state with legal sportsbooks like Connecticut may be underrepresented among the platform’s sports revenue, but the company’s total fee revenue for sports contracts since they launched is $1.36 billion.
