Kalshi Massachusetts Sports Ban Closer To Taking Effect As Judge Rejects Emergency Stay Motion

Kalshi has been pushed closer to being forced to block all Massachusetts customers from its sports contracts after a state judge denied the business an emergency stay, meaning an injunction to ban its sports offering from the state is technically now in force.

The injunction, issued Friday, does not require Kalshi to block customers from the state immediately, but instead has a 30-day implementation period, which will give Kalshi time to seek a stay from an appeals judge. However, it may have to also use that time to prepare for the possibility the stay is denied by taking actions such as setting up geolocation.

Judge Christopher Barry-Smith of the Superior Court for Suffolk County denied the request for an emergency stay, two weeks after he approved an injunction that would ban Kalshi from Massachusetts. The stay would have prevented that injunction from taking effect.

Kalshi can still appeal this decision by asking a single justice of the appeals court to issue a stay. If that stay is denied, then Kalshi would likely have to start blocking users in Massachusetts from accessing its sports contracts.

A Kalshi spokesperson confirmed to InGame that the business was seeking an emergency stay from an appeals justice. The spokesperson declined to comment on whether the business was now working to set up geolocation in case it needed to be activated.

Kalshi does not have to start blocking yet

Until the appeals judge makes a decision, the injunction will technically be in effect, but as it includes a 30-day waiting period, Kalshi will not have to start blocking Massachusetts users right away, and it is likely that the decision from the appeals justice will be made before the waiting period ends.

Barry-Smith directly referenced this in his order.

“Because of the thirty-day period for implementation in the Preliminary Injunction, Kalshi’s alternative request for a short stay to provide time to request a stay from the Appeals Court is unnecessary,” he wrote. “Kalshi is, of course, welcome to seek a stay from the Appeals Court, which presumably can be decided within the implementation period.”

The judge also noted that, because the injunction did not go into effect right after it was approved, any possible blocking would only come into force 47 days after his initial decision, which he said would “mitigate harm.”

However, that timing means Kalshi will likely have to set up geolocation services for Massachusetts in case the Appeals Justice denies the motion for an emergency stay, so that users in the state could be blocked from purchasing sports event contracts. The alternative would be to set up a geofence in a timeframe that Kalshi’s lawyers have argued is unfeasible.

If the new request for a stay is denied, the order will go into effect on March 9, almost exactly a year after an integration with Robinhood helped Kalshi’s sports contracts first begin to take off.

Kalshi injunction details

The text of the injunction says Kalshi must use geofencing — rather than users’ residential addresses — to block the state.

Non-sports contracts will not be affected, and Kalshi users in Massachusetts will continue to be able to fund their accounts for non-sports trading.

Sports trades placed before the geofencing begins will also remain active and users will still be allowed to cash out or hold them until they settle.

A sports contract in the injunction is defined as “a wager on sporting events, or portions
of sporting events, or the individual performance statistics of athletes in sporting
events, or a combination of any of the same.”

Massachusetts to be the first?

Kalshi has yet to block any state from accessing any of its contracts so far, despite setbacks in litigation with other states.

In a federal lawsuit against Maryland, Kalshi was denied an injunction that would have prevented the state from issuing a cease-and-desist. A similar injunction was issued but then dissolved in a case against Nevada. But in both cases, Kalshi appealed and has been able to stay active while the case is ongoing. 

The latest decision in Massachusetts brings the business closer than ever to having to block one state from accessing sports contracts, however. 

Same stay standard as Superior Court

Andrew Kim, a partner at Goodwin Law who has been following the various lawsuits involving prediction markets, told InGame that the standard for an appeals judge issuing a stay is the same as the standard for the Superior Court, which already denied Kalshi’s request.

However, he also noted that Barry-Smith suggested the decision was a close call, so a different decision from a higher court could be possible.

“The general assumption is not to count on a stay,” he said. “That said, Judge Barry-Smith recognizes in his order that ‘Kalshi’s appeal raises meaningful issues on which recent decisions are divided.’ 

“So that may persuade a single justice to lean towards a stay.”

Judge: Kalshi ‘must have appreciated the risk’

Barry-Smith determined that while the issue of the legality of sports event contracts was “unsettled,” Kalshi did not meet the standard of being likely to succeed on the merits of the case, which is part of the standards for issuing a stay.

He added that while Kalshi was likely to suffer financial harm if it had to block the state, it would not suffer “irreparable harm,” as financial losses can be recovered if it is ultimately determined that Kalshi’s sports contracts are legal.

He went on to note that the business must have known of the risk of offering contracts that many state authorities have argued are a form of illegal wagering, and so it should be prepared for the impact of a possible injunction.

“Kalshi adopted its business model — relying on CFTC regulation of ‘swaps’ to offer nationwide sports betting in contravention of state gaming laws — with eyes wide open; it plainly must have appreciated the risk-or likelihood-of an order like this Preliminary Injunction,” he wrote. “Being a sophisticated entity, it presumably prepared for that risk.”

Barry-Smith also brought up that idea when he chose to approve the injunction. At that time, he cited a September CFTC letter to prediction markets that offered sports contracts, which said that companies should have a plan in place in case a state bans their contracts. The CFTC withdrew that letter this week after new chair Michael Selig — a defender of sports event contracts — said last week that it had caused confusion.

Massachusetts first to sue a PM

Massachusetts Attorney General Andrea Campbell sued Kalshi in September, arguing the platform offered sports wagering in the state without a license. It was the first time a state had sued a prediction market in state court, as previous lawsuits all involved a prediction market suing a state in federal court.

As in its other lawsuits, Kalshi argued that the federal Commodity Exchange Act preempted state gaming laws.

“In its opposition to the Commonwealth’s motion, Kalshi does not argue that its sports-related event contracts do not meet the definition of sports wagering in the Commonwealth,” Barry-Smith wrote in his opinion when he approved the injunction last month. “Neither does it challenge the Commonwealth’s assertion that it is operating in Massachusetts without a license. 

“Rather, consistent with its litigation strategy in other states that have challenged its operation, Kalshi argues that the Commonwealth’s attempt to regulate its exchange through the state’s Sports Wagering Law is preempted by federal law. As explained below, I disagree.”

Barry-Smith added at the time that the CEA did indeed preempt some state laws, but only those that could be considered in the field of commodities trading. The preemption, he wrote, did not extend to “traditional state police powers, such as gambling regulation.”