Kalshi is in danger of having to shut off access to its sports contracts in Nevada after a judge denied the prediction market a stay that would have allowed it to keep offering the contracts.
Judge Andrew Gordon of the U.S. District Court for the District of Nevada on Tuesday decided against a stay that would have prevented Nevada from enforcing a cease-and-desist against the prediction market until the U.S. Court of Appeals for the Ninth Circuit considered an appeal. Gordon last month dissolved an injunction that also would have prevented Nevada from enforcing the cease-and-desist.
The prediction market must now file an emergency motion in the U.S. Court of Appeals for the Ninth Circuit if it wishes to keep operating in the state.
Any enforcement likely not soon
Kalshi’s lawyers initially said that granting a stay should be an easy decision because Nevada would not object. However, the state issued a reply brief arguing that it did object “because Kalshi has not met the prerequisites for that relief.”
Nevada said it would not enforce the cease-and-desist while the District Court was considering the motion for a stay, but its lawyers said the state has “not addressed” whether to enforce the cease-and-desist as the Ninth Circuit considers the case.
The Ninth Circuit’s decision on an injunction could take some time. The first Kalshi lawsuit to go to the appeals circuit was its case against New Jersey, where Kalshi received an injunction but the state appealed. The appeal was filed in the Third Circuit in May, but the court has not yet made a decision.
As a result, a stay that lasts until the Ninth Circuit makes a decision could similarly prevent Nevada from taking action for more than six months.
Judge provides little reasoning
In issuing the stay, Gordon simply pointed to the reasons he had dissolved the injunction. The granting of injunctions and stays are based on similar standards, namely the likelihood of winning on the merits, irreparable harm, injury to other parties, and the public interest.
However, the standards to receive a stay tend to be lower, as it is considered a pause on activity rather than a new order.
For example, while a party seeking an injunction typically has to show that it is more likely than not to win on the merits, a party seeking a stay only has to show that there are “serious questions” about who would win. The standard for harm can also include more abstract forms of harm.
In his decision on the injunction, Gordon argued Kalshi was not likely to win on the merits because he did not believe that its sports event contracts were swaps — a type of financial instrument traditionally used for hedging, which are regulated by the Commodity Futures Trading Commission. He said that swaps could concern whether an event happens but not “outcomes” such as the winner of a sporting event.
However, he acknowledged at the time that the questions involved were complex with differing interpretations and even explicitly wrote that there were “serious questions” regarding the merits of the case.
Gordon’s lack of further explanation beyond pointing to his injunction decision means it is unclear exactly how he came to the decision on the stay.
“While there’s significant overlap between the legal standards for a stay versus an injunction, there are differences, too, as the Ninth Circuit has noted in cases like Leiva-Perez v. Holder,” Andrew Kim, a partner at Goodwin Law who has followed the case, told InGame. “It’s possible that Judge Gordon thought that he could just refer to his prior analysis because the stay here would keep an injunction in place—so he should treat it like a motion for an injunction pending appeal.
“But if that was his reasoning, it would have been helpful for him to say so.”
One prediction market already blocks Nevada
Crypto.com has already shut off access to its sports event contracts in Nevada after it was denied an injunction in October. That made it the first prediction market to block access to any of its contracts in a specific state.
On the other hand, Kalshi still offers its full suite of contracts across the entire U.S., despite its injunction being dissolved in Nevada and having also been denied an injunction in Maryland. It has argued that geofencing certain states would be prohibitively expensive and arguably in violation of CFTC rules, but doubt has been cast on both claims.
Crypto.com has also pulled out of Arizona, according to Sports Betting Dime, despite no courtroom proceedings involving that state. The prediction market reportedly stopped offering sports event contracts in the state on Dec. 2, then stopped offering other contracts on Dec. 12.
