Baltimore claims Kalshi, Polymarket run illegal sportsbooks

Baltimore claims Kalshi and Polymarket's prediction markets are legally indistinguishable from traditional sportsbooks.BALTIMORE (CN) — The city of Baltimore sued Kalshi and Polymarket on Thursday, lcaiming their rapidly growing prediction markets constitute sports gambling without obeying Maryland gambling laws.“These companies are running sportsbooks without licenses and betting that a new label will put them above the law,” Baltimore Mayor Brandon M. Scott said in a press release Thursday. “It won’t. Baltimore will not let multibillion-dollar companies put profits over people and harm our communities through illegal gambling.”While regulation of sports betting has primarily been relegated to individual U.S. states since 2018, the recent breakneck rise of alternative prediction markets has thrown a wrench in both the gambling industry and regulation of them.Rather than placing bets based on odds determined by a casino or “house,” users of prediction markets like Kalshi and Polymarket purchase event contracts based on odds determined by trade activity of the event contract itself.Beyond technical distinctions, Kalshi and Polymarket provide nearly identical services compared to traditional sportsbooks — both services allow wagers on game winners, point spreads, point totals and player statistics, Baltimore says in its complaint.While the prediction markets say these distinctions distinguish them from sportsbooks and shield them from state regulations, Baltimore and Maryland’s gaming commission have called event contracts “indistinguishable” from traditional bets. As such, Baltimore claims, Kalshi and Polymarket have been operating gambling rings without proper state licensure and in violation of state consumer protection laws.“Defendants have deceptively represented that their sports wagers are lawful in Baltimore and have unfairly disregarded Maryland’s gambling laws to the detriment of thousands of Baltimore consumers,” the city says in its complaint, filed Thursday in Baltimore City Circuit Court.Legal precedent exists for state regulation of prediction markets — states including Nevada, Massachusetts and Washington state have all previously won court orders restricting Kalshi’s activity. New York’s attorney general also filed a similar suit in July, weeks after a New York federal judge refused to block state regulators from enforcing gambling laws against Kalshi and Polymarket.However, this past April a Third Circuit panel found states lack authority to regulate prediction markets, effectively sending regulation of such markets into legal limbo.Two members of the three-judge panel sided with Kalshi, which argued event contracts constitute “swaps,” a type of derivative exclusively regulated by the Commodity Futures Trading Commission. The commission is a federal agency, of which its commissioners are nominated by the president.As such Kalshi and Polymarket have argued states are preempted from demanding restrictions for prediction markets.“City-specific action runs counter to the CFTC’s established framework for regulating prediction markets,” a Polymarket spokesperson said Thursday. “As courts have recognized, prediction markets on CFTC-registered exchanges are governed by federal law, not a patchwork of state and local rules.”Similarly, Kalshi said its business does not run afoul of applicable federal law.“Kalshi spent years getting regulated by the federal government and abide[s] by all applicable regulations, including consumer protection laws,” a Kalshi spokesperson said Thursday. “If the mayor has genuine concerns about guardrails, we’re always happy to chat.”Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads