Maryland has filed a ruling in an abortion case in West Virginia to aid its fight against Kalshi’s expansion into sports prediction markets.
The Fourth Circuit ruling in GenBioPro v. Raynes held that federal authority didn’t automatically preempt West Virginia’s abortion restrictions.
Maryland hopes this sets a precedent for the ability of state law to override federal law, which could give state regulators the power to stop Kalshi from offering sports markets.
Kalshi is regulated at the federal level by the Commodity Futures Trading Commission (CFTC) and has won injunctions in similar cases in Nevada and New Jersey by insisting that only the CFTC has the authority to oversee its operations.
The GenBioPro v. Raynes ruling on July 15 judged that FDA approval of mifepristone, an abortion pill, does not automatically override state laws banning or restricting its use.
Gaming lawyer Andrew Kim believes it lends strength to Maryland’s case, which Nevada and New Jersey lacked.
Speaking to the Event Horizon, Kim said, “The GenBioPro decision calls attention to an issue to which the judges in Nevada and New Jersey gave short shrift: the presumption against preemption, or the idea that, if Congress is going to push the states out of an area in which they traditionally regulate, it will do so clearly.“
“If Judge Abelson is going to rule against Kalshi, my sense is that he will lean heavily on the presumption against preemption to do so.”
However, he went on to state that, “By no means is the GenBioPro case a silver bullet for Maryland. For one, it’s an abortion case, and abortion is a radically different issue.”
He continued, “certain aspects of the decision don’t apply to the issues teed up in Maryland.” In the abortion case, the state decides if abortion is legal, and then, if it is legal, the FDA decides which pills are allowed to be used.
This differs significantly from the Kalshi case, Kim says, and Kalshi can easily argue that “the natural implication of the CEA’s Special Rule clearly leaves it to only the CFTC to regulate even contracts involving gaming.”
Maryland, on the other hand, argues that the Commodity Exchange Act (CEA), which sets the rules around which markets are legal for CFTC-regulated platforms, was not designed to allow sports betting.
The Dodd-Frank Act significantly amended the CEA in 2010; however, at the time, one of the Senators involved in drafting the amendments, Sen. Blanche Lincoln, stated that sports markets were not covered and would be classified as gambling.
Lincoln stated, “It would be quite easy to construct an ‘event contract’ around sporting events such as the Super Bowl, the Kentucky Derby, and the Masters Golf Tournament.”
“These types of contracts would not serve any real commercial purpose. Rather, they would be used solely for gambling.”
Sen. Lincoln has changed her stance, however, and is now registered as a lobbyist for Kalshi.
She recently sent a letter to the CFTC urging the organization not to give up any authority over the markets to state regulators.
Lincoln wrote: “The CFTC faces a lot of pressure right now to ban prediction markets, especially contracts tied to political elections or sporting events,” she wrote.
“This would be a grave mistake for a number of reasons, and it would fly in the face of the agency’s long-standing policy of letting the markets decide.“
Kalshi has made similar comments in the past about the lack of commercial value of sports markets.
In a court case against the CFTC over their election markets, the company argued that outcomes of sporting events have no real economic significance and do not qualify as “excluded commodities” under the CEA.
Judge Ableson, who is overseeing the case in Maryland, raised the change in stance by the company, which now argues that sports markets have real financial consequences and are therefore covered by the CEA.
Kalshi has accelerated the expansion of its sports markets since introducing them in January, and has seen over $2 billion traded on sports this year.
Sports now accounts for over 70% of the total trading volume on the platform.
An adverse ruling in Maryland could significantly impact the company’s business, but it will be hopeful to score another victory, as it has in Nevada and New Jersey.
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