Regulators Question If Prediction Markets Are Gambling or Finance

Massachusetts Attorney General Andrea Campbell has filed a lawsuit against prediction market platform Kalshi, alleging that the company is operating an unlicensed sports betting service within the state. The legal action, announced on Wednesday, claims that Kalshi’s offerings—described as binary contracts based on the outcomes of sports events—functionally equate to sports betting, which is currently illegal in Massachusetts. The suit seeks to halt Kalshi’s operations and impose civil penalties.

The lawsuit comes as regulatory scrutiny of digital prediction markets intensifies, particularly in jurisdictions where the distinction between speculative financial instruments and gambling is blurred. Kalshi, a U.S.-based platform backed by the Chicago Mercantile Exchange (CME), launched in 2022 and has since faced similar legal challenges in other states. Massachusetts joins New York and California in questioning the legality of the platform’s operations.

In response to the lawsuit, Kalshi issued a statement defending its activities as legal and regulatory compliant under federal and state laws. The company emphasized that it is a licensed securities exchange and is registered with the U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Kalshi’s spokesperson stated, “We are committed to engaging with regulators and the courts to clarify the appropriate legal framework for prediction markets,” and affirmed the platform’s intent to fight the Massachusetts suit vigorously.

Massachusetts’ legal case hinges on whether binary contracts on sports events should be classified as gambling or as financial instruments. The state argues that the contracts lack a regulatory framework within the state’s gambling laws and offer no meaningful distinction from traditional sports betting. The suit also contends that the lack of age verification and responsible gambling measures on Kalshi’s platform further supports its characterization as an unregulated betting service.

Kalshi’s defense, however, is based on its compliance with federal regulations that govern futures and securities markets. The company maintains that it is not a gambling platform and operates under the oversight of major U.S. financial regulators. This legal tension highlights the broader debate over whether digital prediction markets should be subject to state-level gambling laws or remain under federal financial regulation. Analysts have noted that the outcome of the Massachusetts case could influence similar legal challenges in other states and shape the regulatory landscape for prediction market platforms nationwide.