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Controversy over sports prediction markets continues, as another key state has sent cease-and-desist letters to three prediction exchanges and an additional state regulator has confirmed an investigation.
The Illinois Gaming Board (IGB) became the fourth state to send cease-and-desist letters ordering prediction markets to halt operations in their state, after sending notices to Kalshi, Robinhood and Crypto.com on Wednesday (April 2).
In the letters, the IGB said that it has “reason to believe” that the three companies are engaging in “unlicensed sports wagering” in violation of state law.
In addition, representatives of the Connecticut Department of Consumer Protection confirmed they have an open investigation that began last autumn into Kalshi, which a spokeswoman said is “suspected of operating in violation of Connecticut law”.
Vixio GamblingCompliance also reached out to several additional state regulators that oversee licensed sports-betting markets.
A spokesperson for the New York State Gaming Commission said that the commission “refers suspected illegal gambling operations to appropriate law enforcement bodies”.
The spokesman also pointed to comments from chairman Brian O'Dwyer in January that said he had “serious concern that there are operators conducting business inside our state that are running afoul of New York’s penal restrictions on unlawful gambling” and that commission staff “have made several referrals to law enforcement and is assisting in case development”.
A spokesperson for the Massachusetts Gaming Commission said that the commission is “of course aware of these new platforms and are watching development at the federal level closely”, and referred questions on potential legal action to the Massachusetts Attorney General’s Office.
The increased spotlight comes after Nevada, New Jersey and Ohio have all sent cease-and-desist letters to at least one prediction exchange ordering the companies to stop offering their sports event contracts.
Kalshi responded by filing lawsuits in federal court last week against Nevada and New Jersey seeking injunctions to stop the states from taking action against the federally-regulated exchange operator.
“I think that the state regulators are coming in and viewing this as their domain,” said Reade Jacob, an attorney at the law firm WilmerHale, during an April 1 webinar hosted by KPMG.
“Nevada and New Jersey have been major players in the area for quite some time, and they think that these types of event contracts are impeding on their grounds.
“On the other side, the event contract [exchanges] say that this is not sports betting,” Jacob continued. “'This is something different, and it's regulated at the federal level, at the CFTC [Commodity Futures Trading Commission], and that there are preemption grounds for it.”
Nevada U.S. Representative Dina Titus also wrote a letter this week to the CFTC urging the commission to prohibit the trading of the contracts in Nevada, and stay the listing of sports-event contracts nationwide pending a legal process.
“While I understand that the Commission has announced a process to collect additional information and data regarding prediction markets generally to inform future regulatory action, the Commission also has a responsibility to enjoin entities under its regulatory purview from actively violating the laws of Nevada, New Jersey, Ohio, and other jurisdictions during the pendency of this process,” Titus wrote.
It is not lost on the gaming industry how consequential the conflict between state authorities, exchange operators and the CFTC over sports-event contracts threatens to be.
“Obviously, there's a lot of legal uncertainty, but if the CFTC eventually rules or allows these to go forward, there have to be a lot of hard decisions,” said Alex Costello, vice president of government relations for the American Gaming Association, during the KPMG webinar.
“And I think that's where states are starting to realize this, like why would an operator potentially pay hundreds of thousands of dollars for a license?” Costello continued.
“Why would they pay upward of 51 percent tax on their gaming revenue to a state? Why would they pay the federal excise tax?
“This is the way that the industry has been regulated forever, and we want to keep it that way,” Costello added. “It should be in the States' hands. But if it's decided another way, I think that's going to be a real moment for the industry to kind of self-reflect and see where we're going to go.”
