TLDR
- New York is suing Kalshi for $36 billion over claims that its sports contracts are illegal sportsbooks.
- The CFTC used emergency authority to shield Kalshi from state legal action just one day after a Saratoga panel discussed the issue.
- Kalshi had offered a 6% tax proposal before the lawsuit, but New York officials say it does not match the 51% tax rate paid by licensed sportsbooks.
- Legal experts believe the U.S. Supreme Court will likely settle the dispute over prediction markets.
- Horse racing could benefit from prediction markets through side bets on jockeys and awards, rather than race outcomes.
Prediction markets are facing a wave of legal challenges across the country. The fight centers on whether platforms like Kalshi and Polymarket are operating as unlicensed sportsbooks.
New York is one of the states pushing back hardest. The state is seeking $36 billion from Kalshi in an active lawsuit.
The topic came up during a panel at the Racing and Gaming Conference in Saratoga Springs last week. Industry lawyers and state officials shared different views on how to handle the issue.
One day after that panel, the Commodity Futures Trading Commission stepped in. Chairman Michael Selig used the agency’s emergency authority to protect Kalshi from New York’s legal action.
Should States Tax Prediction Markets?
Katie Neer, a lawyer who once served as an aide to former Governor Andrew Cuomo, said several states have already moved to tax or regulate these platforms. She said New York has held off because officials do not want to appear to legitimize the activity while the lawsuit is pending.
Neer disagrees with that approach. She said the state should start collecting tax revenue instead of waiting.
Before the lawsuit was filed, Kalshi proposed a 6% tax on trades. The company said this could generate close to $10 billion over five years.
Chelsea Davis, who oversees gaming policy for Governor Kathy Hochul, said that offer falls short. She pointed out that licensed sportsbooks in New York already pay a 51% tax on revenue.
Davis said the state has to weigh public interest along with potential tax income. She compared the situation to how New York handled marijuana legalization, where public support was clear from the start.
She said prediction markets do not have that same level of public backing. Some of the sports contracts offered have raised concerns about integrity and oversight.
Regulators and Courts Still Working Through the Issue
The CFTC continues to draft rules aimed at these platforms. Dan Ullman, a partner at law firm Orrick, said the agency is testing how sports contracts hold up under scrutiny while the legal fights play out in court.
Ullman expects the U.S. Supreme Court will ultimately decide how prediction markets are treated under federal law.
Neer added that most trading on these platforms comes from professional forecasters, not casual users. She said everyday traders deserve some form of consumer protection given how much money is involved.
Horse racing was also part of the discussion, even though it took a while to come up. Federal law covering interstate wagering has kept prediction markets largely out of race betting.
Polymarket briefly listed contracts on this year’s Kentucky Derby. The platform pulled them after Churchill Downs objected.
Lawyer William Gotimer said prediction markets could still find a place in racing through side markets. He mentioned contracts tied to jockey standings or year end awards as one possible option.
Gotimer said racing can be harder to follow than typical sports betting. He believes fans might enjoy tracking a favorite jockey or trainer over a season rather than betting race by race.
For now, the legal fight between states and prediction market operators shows no signs of slowing down. The CFTC’s emergency action for Kalshi in New York is the most recent development in the ongoing dispute.
