Update: On Wednesday, the D.C. Circuit judge accepted the CFTC’s unopposed motion for voluntary dismissal. The judge’s acceptance brought an official end to Kalshi’s election contract case. The case has made the CFTC’s position on election contracts under Chairman nominee Brian Quintenz clear. The CFTC will likely support event contracts’ expansion into previous taboo subjects like elections and possibly sports.
The CFTC filed on Monday an unopposed motion for voluntary dismissal in the election contract lawsuit that commercial prediction market platform Kalshi brought against it in 2023.
In the joint stipulation signed by lawyers representing both parties, each party agreed to:
“…bear its own costs, court fees and attorney fees incurred in the proceedings before this Court, the district court, and in administrative proceedings before the Commission. The parties further stipulate that Kalshi waives any and all claims relating to or arising from litigation of this matter before this Court, the district court, or administrative proceedings before the Commission…”
The agreement to dismiss the case ends one of the greatest threats to some of Kalshi’s largest single markets. Trading volume in the 2024 presidential election market reached $536 million.
The case dismissal is another signal of the generally pro-Kalshi stance of the current administration. Kalshi co-founder and CEO Tarek Mansour had the following to say about the result:
“Today is historic. We have always believed that doing things the right way, no matter how hard, no matter how painful, pays off. This result is proof of that. Kalshi’s approach has officially and definitively secured the future of prediction markets in America.”
Two approaches to Kalshi’s election contracts
In 2023, under CFTC Chairman Rostin Behnam, the CFTC opposed Kalshi’s election contracts on the grounds that they constituted “gaming.” Kalshi challenged that interpretation of its contracts, arguing that elections are not games, so contracts on their outcomes cannot be considered gaming.
The DC District Court agreed, and the DC Circuit Court of Appeals heard oral arguments on the CFTC’s appeal on Jan. 17, three days before the Trump administration took power. The election contracts case was one of the last immediate legal liabilities Kalshi faced with its regulator.
The outcome of its election contract case could signal that the CFTC may support Kalshi in its fight to offer sports contracts in a legal landscape that gave that power (regulated sports betting) to individual states in 2018.
CFTC support in the sports contract fight
In 2018, the Supreme Court struck down PASPA, the law prohibiting states from regulating sports betting. States began deciding whether to approve sports betting, and under which terms, shortly after the ruling.
State gambling regulators have sent cease-and-desist orders to Kalshi and other prediction market platforms over contracts on sports outcomes, which are identical to sports contracts offered by a licensed sports betting company, Sporttrade.
Kalshi has already received two favorable rulings in Nevada and New Jersey, but preliminary injunctions only buy time for the cases to play out. If the courts rule that the CFTC is the only regulator able to prohibit sports contracts, then the CFTC’s refusal to conduct a public interest review and prohibit Kalshi’s sports contracts could become the next major event contract case.
Given CFTC Chairman nominee Brian Quintenz’s previous statements, he is likely to support prediction markets’ claims to sports contracts. The CFTC’s agreement with Kalshi over election contracts seems like yet another sign of support to come.
