States Clash Over Whether Event Contracts Are Gambling

Missouri Attorney General Catherine Hanaway is seeking orders to stop prediction-market companies from operating in her state, while Montana has agreed to halt enforcement against Kalshi under a federal court agreement. These actions are part of a broader state-by-state debate over how sports event contracts should be regulated.

Hanaway believes these contracts constitute gambling under Missouri law regardless of how prediction markets price their fees compared to traditional sportsbooks. She argues that the products operate similarly to licensed operators like FanDuel, taking bets on sports events, even if the fee structure differs. Missouri aims to bring such companies under state gaming law and collect gambling taxes.

The Attorney General is open to settling, drawing inspiration from Kentucky's recent negotiations, but will pursue litigation if no agreement is reached. Concerns about age verification, insider trading, and consumer protection are also part of the case. In Montana, a joint stipulation filed by the state and Kalshi forbids enforcement actions against Kalshi's event contracts until a Ninth Circuit review decision.

Kalshi has dropped its Montana lawsuit while the review process is ongoing. The situation reflects a larger dispute between states and federal regulators about the application of gambling laws to federally regulated event contracts, with other states like Connecticut, New York, Arizona, Iowa, and Massachusetts also pursuing cases.

The federal government, through the CFTC, has expanded relief for software providers facilitating access to event-contract markets, allowing them to offer order-routing services without registering as introducing brokers, provided they meet certain criteria. The ultimate question remains unresolved: whether sports event contracts should be considered gambling products or federally preempted derivatives, a matter under active consideration by various courts and potentially the U.S. Supreme Court.