Prediction markets are facing legal action across the United States over what many are calling illegal gambling.

New York is the latest state suing Kalshi over their operations.

Part of that is a temporary restraining order which could, for the time being, stop Kalshi from operating within the state.

That’s a big deal, since they have a major operation centered in Manhattan, which might lead to nationwide ripple impacts on their business.

While the New York lawsuit targets all predictive market trading, sports has made up a huge part of that.

The big question at play: Does sports trading fall under gambling laws?

If it does, the state has jurisdiction. If it does not, the feds, i.e. the Commodity Futures Trading Commission, does.

They’ve already made their stance clear.

CFTC Chairman Mike Selig tweeted out, “Rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide. The CFTC has already sued to stop this and will continue to defend its jurisdiction.”

Right now, prediction markets are able to not fall under state guidelines more because of a technicality.

Prediction markets use futures contracts: Will something happen? Yes or no.

It’s something you see more in commodities like wheat, beef or coffee.

Sports gambling is based on the line set by the sportsbook. You set a bet and it’s win or lose.

In that regard, it does sound similar. That’s why the state is upset they aren’t getting a piece of the pie, and prediction markets aren’t following state gambling regulations.

James notes while you have to be 21 to bet on sports, Kalshi is available to those as young as 18. There are also no problem gambling safeguards. Additionally, when it comes to taxes, if prediction markets are gambling, the state’s missing out on a lot of income, too.

“In the state of New York, it’s 51% of all tax revenue in sportsbooks — highest in the country. They don’t get that same revenue for Kalshi and predictive markets,” explained John Wolohan, a professor in the Falk School of Sport Management and the Syracuse College of Law. “They also don’t have the same controls. […] The money that I’m putting down doesn’t have to actually come from me. It could be cryptocurrency, where it’s more hidden as to who’s actually betting on that. And so if we’re looking at the impact on sports, I could be throwing games and it’s going to be harder to come back and catch me.”

This is one of multiple lawsuits against prediction markets across the nation.

Seeing how they play out will take time.

We’re looking at three lawsuits between New York, Kalshi and the Community Futures Trading Commission alone.

There are others in the system for different predictive markets.

While each state might have its own intricacies, there are overarching issues. That’s why there’s some legislation working its way through Congress.

That’s in addition to the cases working through the legal system, potentially up to the Supreme Court.

It won’t be a quick answer, but we will have to get one eventually.

If the states come out on top, that means taxes, restitution, fines and more, which could be a huge blow to these prediction market businesses.

In New York, James says that would amount to, at minimum, $36 billion owed by Kashi alone.

“Either Kalshi wins or it loses 100%. Right now, there is no easy way to figure out how you can resolve this with some measure of compromise,” said Bennett Liebman, a government lawyer in residence at the Government Law Center of Albany Law School. “Why would you deal with the state when you can deal with the federal government and be subject to far lower taxes and considerably less regulation? So, we’re really talking about a difficult situation here.”

This is also something on the radar of established gambling operations. The American Gaming Association released a statement saying: “We applaud the State of New York for taking this important and necessary action today to uphold the rule of law, protect consumers, and defend the nearly 70,000 New York jobs supported by the legal gaming industry.”