Kalshi is classified as an illegal gambling house by the Ohio courts.

The Kalshi platform must comply with Ohio state rules for sports betting. U.S. District Court Judge Sarah Morrison rejected the company's argument on Monday (10) that its sports prediction markets are contracts regulated by the federal government. The Ohio Casino Control Commission wants to block the platform's operation in the state.

The decision established that Kalshi's sports prediction markets are gambling games subject to state laws. The New York-based platform allows users to invest money to receive payouts based on the outcomes of sports, politics, and world events. According to NBC News, the Ohio Casino Control Commission classified Kalshi as an "unlicensed sports betting house" that "facilitates illegal gambling." The company had sought an injunction against the state commission.

Kalshi attempted to classify its sports betting offerings as federally regulated swaps . This type of contract is common in financial investments. Judge Morrison rejected this interpretation.

“ Swaps are understood as a transaction involving financial instruments and measures that traditionally directly affect commodity prices ,” the judge wrote. She added: “Exchange rates, weather, and energy costs all influence prices; the number of points scored in the Huskies-Bobcats game does not.”

The judge based her decision on the need to “avoid absurdity.” Morrison wrote: “This conclusion is further reinforced by the Court’s obligation to avoid absurdities.” The judge noted: “Ohio argues that absurd results would arise from defining ‘exchange’ to include a sporting event contract. The Court agrees.”

Context of sports betting in the United States

Currently, sports betting is permitted in 39 U.S. states and the District of Columbia. Of these jurisdictions, 32 authorize digital betting. Traditional sports betting companies, such as FanDuel and DraftKings, have had to negotiate entry into these states. They meet regulatory standards and pay taxes to operate.

Before the U.S. Supreme Court paved the way for the legalization of sports betting in 2018, Nevada was the only state in the country with legal sports betting.

Prediction markets like Kalshi and Polymarket have sought to circumvent these state guidelines. They claim to function like commodity futures contracts . Several states, primarily Nevada and Massachusetts, have contested the entry of prediction markets into their territories. These states argue that sports betting has always been within the jurisdiction of the state government.

Reactions and next steps

Ohio Attorney General Dave Yost celebrated the decision in a post on the social media platform X on Tuesday. “Kalshi argued that the Federal Commodity Exchange Act prevents the enforcement of Ohio law. Wrong,” he said. “These ‘prediction markets’ have exploded and look a lot like gambling. Big win for Ohio!”

Kalshi has announced that it will appeal the Ohio decision. A company spokesperson stated: “We respectfully disagree with the Court’s decision, which diverges from a Tennessee federal court ruling issued a few weeks ago, and we will promptly file an appeal.”

The company recently won a court victory in Tennessee. The ruling prevented Nashville from forcing the platform to comply with state regulations.

The battle for control of sports betting could extend over several years. Betting markets may continue to operate during this period. The states contesting the betting markets do not share common characteristics. They are politically diverse, including Massachusetts (Democrat), Ohio (Republican), and Nevada (undecided).

The states involved in the legal disputes argue that there is no precedent to justify federal control over sports betting. They maintain that this power has always belonged to state governments.

Prediction markets, such as Kalshi, argue that they are not sports betting. They claim that individuals are offering their contracts against each other. This would be different from a traditional bookmaker who operates as "the house" to secure bets and regulate the market.