Prediction market operators received more excellent news today as Kalshi won an initial restraining order and a momentary injunction versus the New Jersey Division of Gaming Enforcement (NJDGE). Last month, the NJDGE issued cease-and-desist orders to Kalshi and Robinhood, another forecast market provider.

Key Insights:

- New Jersey is among several states that released cease-and-desist orders to Kalshi and/or other forecast market companies over their recently provided sports event futures contracts.
- This is the 2nd federal court, after the U.S. District Court for the District of Nevada, that has sided with Kalshi.
- Should prediction markets maintain their asserted right to provide sporting occasion contracts, without state guideline or tax, it could adversely impact state sports wagering revenues.

After receiving a cease-and-desist order from the NJDGE, Kalshi filed a movement for a preliminary restraining order and a short-term injunction with the U.S District Court for the District of New Jersey. In response, the NJDGE filed an opposition to Kalshi's movement.

The NJDGE argues that Kalshi made its sporting event contracts available to New Jersey citizens in violation of New Jersey sports wagering laws and guidelines. Kalshi is unlicensed by the state. As a forecast market operator, however, it is federally managed by the Commodity Futures Trading Commission (CFTC).

Kalshi argues that the state has no jurisdiction over its sporting occasion agreements as forecast markets are managed by the federal government. The NJDGE countered that sporting event agreements ought to not fall under the CFTC's jurisdiction as they are not monetary in nature. The large bulk of regulated futures agreements are based upon the future prices of products or other financial securities.

On both points, the judge sided with Kalshi.

"I am encouraged that Kalshi's sports-related occasion agreements fall within the CFTC's special jurisdiction and am unconvinced by the accused's arguments to the contrary," Judge Edward Kiel wrote. "Defendants argue that sporting occasions lack potential monetary, financial, or commercial consequence. On the record before me, I disagree."

The next states in Kalshi's sights

Like Nevada and New Jersey, Maryland provided Kalshi a cease-and-desist order. And like Nevada and New Jersey, Kalshi filed a movement for a preliminary limiting order and a momentary injunction with Maryland's U.S. District Court.

Meanwhile, Ohio expects that it may be the next recipient of a Kalshi suit. Ohio released a cease-and-desist order to Kalshi and 2 other forecast market business late last month.

While Kalshi seems to have the upper hand in these preliminary legal battles, the war over sports trading guideline will likely continue. For something, there's a great deal of obscurity in federal law and policy to keep lawyers and judges hectic.

The Federal Wire Act forbids interstate sports wagering, which is one factor why sports betting is legislated and controlled intrastate. Meanwhile, CFTC Rule 40.11(a)( 1) forbids any occasion agreement "that includes, relates to, or recommendations terrorism, assassination, war, video gaming, or an activity that is illegal under any State or Federal law ..."

Also, there is just too much at stake for the states to just fold. For circumstances, New Jersey created $138.3 million in online sports betting tax earnings in 2015. Should forecast markets prevail, states stand to lose among their newest and reputable income streams. Meanwhile, companies like DraftKings and FanDuel, which have made substantial financial investments to secure state licenses and state regulatory approvals, have a lot to lose. Afterall, it will be tough to contend with a prediction market operator that isn't required to pay up to 50% in state taxes.