Kalshi is attracting increasingly more volume in its esports markets, with Counter-Strike 2 the dominant force. States are attempting to rein in the markets; however. A total of 39 states, plus the District of Colombia filed a brief against the company in its legal battle in Ohio this week. 

Kalshi’s esports markets generated a total of $36.18 million in total contract volume across 408 matches in the first week of June. The majority of that was in CS2 matches, which accounted for 65.6% of the total, according to data detailed by Esports Insider. 

League of Legends Also Popular

League of Legends was the second-most traded game, with $8.7 million in volume (24%), followed by Valorant (5.86%) and Dota 2 (4.23%). Other games had nominal volume amounts.

Volume on prediction markets is not the same as betting handle at sportsbooks. It relates to the number of $1 contracts traded, but those contracts could be traded at very low prices, meaning the amount of money users are actually risking is far less than $36 million. 

Rival platform Polymarket has also accused Kalshi of inflating its volume, saying the company double-counts esports categories. Analyzing the data, it appears that esports now have daily trading volume of around $6 million, a big increase from less than $1 million at the start of the year. 

A partnership with Sportradar could allow Kalshi to further expand its esports offerings and integrate live streams. 

39 States Plus DC Oppose Kalshi In Court

The markets can only expand if the company wins its court battles, however. This week, 39 states and DC filed amicus briefs in support of Ohio in its legal fight against Kalshi. 

Kalshi filed a lawsuit against the Ohio Casino Control Commission (OCCC) in July last year. A judge denied the company’s motion for a preliminary injunction in March, but Kalshi has appealed the decision to the Sixth Circuit. 

In addition to the states, tribal groups, the American Gaming Association (AGA), former CFTC Chairman Gary Gensler, and Better Markets, a nonprofit advocating for financial regulation, also filed briefs in support of the OCCC. 

The Third Circuit has already ruled in Kalshi’s favor. Seven of the 16 judges in the Sixth Circuit are Trump appointees, while three more were appointed by George W. Bush. That makes it likely the Sixth Circuit may also rule against Ohio in the case. 

CFTC Backs Kalshi and Moves To Make Sports Markets Legal

The CFTC also filed a brief in support of Kalshi. The organization has Trump’s support and has moved to formally allow sports event contracts this week. 

There has been much debate over whether Kalshi’s sports markets should be classified as gaming, which the Commodity Exchange Act (CEA) prohibits if they are contrary to the public interest. 

In its new rules proposed this week, the CFTC stated: “The Commission preliminarily believes that these categories of sports event contract markets may serve price discovery functions and provide meaningful information.”

This effectively means the CFTC considers sports contracts valid financial instruments, as Kalshi has argued in courts across the country. 

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” said Chairman Michael Selig. “This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”  

It draws the line at markets focusing on player injuries, officiating calls, or “Discrete-action contracts involving specific participants”. This could mean that micromarkets, such as the number of kills in the next map for a specific player, could be prohibited. 

The CFTC has now opened a public comment period on its rules, and we would expect considerable voices of dissent as states, tribal groups, and traditional gambling groups oppose its validation of sports prediction markets.

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Prediction market platform Kalshi is defending itself against increasing legal scrutiny. The company filed a lawsuit against Rhode Island authorities and also sent a cease-and-desist letter to FairPredicts, a group that has been running an ad campaign with the tagline “Kalshi Lies.” 

Kalshi has attempted to preempt enforcement actions from state regulators by suing authorities in federal courts. The company believes it has a better chance of success there than in state courts, which may be more sympathetic to state regulators’ arguments. 

The lawsuit against Rhode Island states that it “believes Rhode Island will imminently bring an enforcement action against Kalshi with the intent to prevent Kalshi from offering event contracts for trading on its federally regulated exchange.”

Rhode Island Sues Kalshi and Polymarket

Whether it was pre-planned or a response to the lawsuit, Rhode Island’s Attorney General announced that it was suing Kalshi and Polymarket later that day. 

“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that,” said Attorney General Peter Neronha in a press release. 

“The problem here is that Rhode Island State law heavily regulates gambling, for good reason, and we allege that Kalshi and Polymarket are evading our laws.”

Currently, Rhode Island residents can wager on esports at Kalshi and Polymarket, but not at a legally regulated sportsbook. Rhode Island only offers one option for sports betting, Rhode Island Sportsbook, although it recently announced that Bally’s will also be granted a license to launch its online platform. 

That could see legal esports betting made official as Bally’s offers odds on major events in other states. 

Kalshi Encouraging Addictive Behaviors, Claims AG

The complaint filed by Neronha alleges that “Kalshi and Polymarket not only function as betting platforms, but also adopt the design and terminology of traditional gambling operations.” 

“For example, Kalshi prompts users to gamble with leaderboards and constant updates on how other users are placing bets. Such design choices have long been known to encourage addictive gambling behavior.”

Kalshi signed up as a member of the National Council on Problem Gambling (NCPG) earlier this week. That would appear to be an admission that the company is operating a gambling platform, as state regulators allege. However, the NCPG created a special category for the company, officially classifying it as its first and only Financial Services & Trading member. 

In a press release, Kalshi CEO Tarek Mansour stated, “As prediction markets continue to evolve, we are deeply committed to setting a new standard for responsible trading by investing in the tools, education, and protections needed to promote healthy participation and customer safety and hope that over time all trading platforms with significant retail participation follow suit.”

Kalshi Lies Campaign Prompts C&D Order

In addition to the legal actions in Rhode Island, Kalshi lawyers were also busy on Thursday issuing a cease-and-desist order against FairPredicts. 

The group, which has not revealed its funding source, has been running an ad campaign with the tagline “Kalshi Lies.” 

It alleges that Kalshi is misleading users and is actually acting more like a sportsbook with the majority of trades conducted through its in-house trading arm, Kalshi Trading, and other institutional market makers. 

In Kalshi’s cease-and-desist letter against the group, it claims they are the ones spreading lies. The letter states that FairPredicts is involved in the “publication, dissemination, and paid promotion of false, misleading, defamatory, and commercially disparaging statements”.

Kalshi Not The House, Claims Company

The company reasserts that it is not the house; Kalshi Trading is only one of many market makers that provide liquidity on the exchange. It also says that the trading arm is overall in a net negative. 

Kalshi spokesperson Elisabeth Diana said she suspects casino interests are funding the campaign. 

“Smells like a casino-led effort,” Diana stated. “Prediction markets are fair, transparent, and open. Casinos limit winners (unfair), price with algorithms (opaque), and set the odds themselves (closed). FairPredicts or UnfairPredicts?”

Kalshi warns that if FairPredicts does not immediately stop its campaign, it will pursue further legal action against the group. Its legal fight with Rhode Island means it is now involved in court cases in over 20 states. 

Circuit Split Could Lead To Supreme Court Hearing

In New Jersey, state regulators have said they will take the case to the Supreme Court after the Third Circuit ruled in favor of Kalshi. 

In the Ninth Circuit, meanwhile, on Thursday, a judge denied Kalshi’s and Polymarket’s motions for a stay pending appeal. This sends civil enforcement actions back to state courts in Nevada and Washington. Nevada is the only state to have successfully restricted Kalshi thus far. It also restricts Polymarket, as well as Crypto.com. 

With a circuit split in the rulings, that could accelerate a Supreme Court hearing. A Supreme Court ruling could eventually clarify whether prediction markets, particularly those on sports, fall under federal or state law.

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Prediction market platform Kalshi has signed up to the National Council on Problem Gambling (NCPG), despite claiming it is not a gambling operator. 

The company has grown exponentially since launching sports markets last year. After starting with a market on the Super Bowl, it now offers wagering on all major events, including esports. 

State regulators have protested against its expansion, filing numerous lawsuits against the company, alleging it is offering unlicensed sports betting. Kalshi, however, argues it is not a gambling platform. 

Yet, joining the NCPG would appear to be an admission that it is indeed offering users the chance to gamble. 

Responsible Trading, Not Gambling

The NCPG said it has created a new membership subcategory specifically for Kalshi. It becomes the first financial services & trading category member. 

This allows the NCPG to refrain from calling Kalshi a gambling company. In the press release, the organization notes that it “maintains a neutral position on the legality of specific gambling, wagering, or prediction products.”

The organization is quite explicit in its mission; however, which is to “mitigate harm and lessen the personal, social, and economic consequences of problem gambling.”

Heather L. Maurer, Executive Director of NCPG was careful not to use the word gambling when commenting on Kalshi, stating, “Innovation and responsibility can and must evolve together. Kalshi’s engagement demonstrates a commitment to mitigating harm before it occurs and ensuring support resources are accessible when they are needed.”

Could Kalshi’s Commitment Be Used Against It?

Kalshi has committed to investing $2 million over the next two years in the NCPG to aid its fight against problem gambling. 

“At Kalshi, we believe in the power of prediction markets, and we are sensitive to the fact that they, like any financial trading products, come with risks,” said Tarek Mansour, co-founder and CEO of Kalshi. “As prediction markets continue to evolve, we are deeply committed to setting a new standard for responsible trading by investing in the tools, education, and protections needed to promote healthy participation and customer safety and hope that over time all trading platforms with significant retail participation follow suit.”

While its membership may be applauded in some quarters as a sign that the company is taking responsibility, it could also hurt its chances in court cases that hinge on whether judges see it as a gambling platform. 

The line between trading and gambling has become increasingly blurred. Over 90% of Kalshi’s trading volume comes from sports contracts. Esports accounts for a significant portion of that volume, as do parlays. 

In a court case arguing for the legality of election prediction markets, a Kalshi lawyer admitted that contracts on the Super Bowl or other sporting events would come under the category of gaming. The Commodity Exchange Act (CEA) says that contracts that fall under the category of gaming may be prohibited by the CFTC. 

The lawyer’s words have been used against Kalshi in legal battles, with many state regulators citing this as evidence that sports prediction markets are gambling. 

In joining the US’s primary nonprofit for tackling gambling harm, Kalshi may just have given opposing lawyers a new argument to use against it in court.

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