Existential Threat
The war on illegal sweepstakes casinos is going well. At least seven states in the U.S. have passed or are considering passing legislation banning sweepstakes casinos.
The attorneys general in other states have issued “cease and desist” orders that are actually being obeyed. The American Gaming Association has sweepstakes casinos in its crosshairs, and is encouraging not only state but federal action as well.
But while that was happening, prediction markets have slid under the radar, and according to these exchange markets, they are legal in all 50 states. We really began to notice prediction markets in the runup to the 2024 elections in the U.S. You can’t legally bet on elections on any U.S. sportsbook or even the sweepstakes casinos, but the exchange sites that take prediction bets were openly taking wagers on Trump vs. Harris and encouraging these kinds of bets in public places, like billboards on the Las Vegas Strip.
Being in the business, I opened up accounts in almost all operational legal iGaming sites in New Jersey, where I live during the summer. I don’t have that option in Nevada, where I live for the balance of the year, because online gaming is not legal in that state. But according to the exchanges, they are legal.
So what the heck, in Nevada last month I signed up for the leading exchange site, Kalshi, and five minutes later I was placing bets, or more accurately I was creating a financial instrument that would pay off if I was correct.
Now, signing up for legal online betting usually takes at least 20 minutes. You must provide a form of identification, swear that you are located in the state where you are betting, download a geolocation app just to be sure, and figure out how to make a deposit.
For sweepstakes casinos, it’s even more complicated because in addition to the ID and geolocation, you have to figure out how to transition from gold coins to sweepstakes coins and back again. And God forbid you want to withdraw. That takes days to get money that you are entitled to—at least according to the sweepstakes site.
The ease with which I could sign up for Kalshi surprised me. And then when you want to sign in, there’s no two-factor process. Just punch in your phone passcode and you’re in. The range of financial instruments you can purchase is indeed impressive.
You can bet on politics—who will Trump pardon in his first 100 days?—sports—not as wide a variety of bets as a real sportsbook, but general things like who will win the NBA title—the weather—what will the high temperature be in New York City tomorrow?—financial data—what will be the U.S. GDP growth in Q1?—entertainment—what song will sit atop the Billboard Top 200 on March 15?—and many more.
As I’m writing this, the Nevada Gaming Control Board has issued a cease-and-desist letter to Kalshi. It’s unclear what Kalshi will do, but Kalshi CEO Tarek Mansour, in a post on LinkedIn, said the company was “disappointed” in the Nevada order, stressing that the company has jumped through multiple regulatory hoops over the past three years to be certain that the product is legal and regulated.
The Commodity Futures Trading Commission, a quasi-government agency, oversees these kinds of financial instruments, and initially turned down Kalshi’s plans for sports betting and prediction instruments, but later relented.
“But the fight wasn’t done,” Mansour wrote on LinkedIn. “Our next step was the election market. After years of engaging with the CFTC, they rejected it. Again, we stayed true to our principle: instead of going around regulations or going offshore, we decided to ask federal courts to weigh in. The courts sided with us because we were right on the law. We freed prediction markets, took them mainstream, and won big.”
So I have a different view of Kalshi and similar sites than I do with sweepstakes casinos.
