Josh Sterling, a lawyer for Milbank who represents Kalshi in ongoing federal litigation, argued at a gaming conference last week that prediction markets differ from sports betting in part because “there are no odds being set.”
And so began another tussle over semantics regarding Kalshi, which lets users put money on the outcome of sports games (and many other events) in all 50 states but is not regulated as gambling. The way Kalshi and its supporters describe the company’s core product has set off arguments online and in court as it faces heat from state regulators, tribes and established members of the gambling industry.
Kalshi, it was widely pointed out after Sterling’s appearance, gives users the ability to view prediction market contract prices in an “American odds” format. In a Jan. 31 social media post promoting this feature, Kalshi wrote, “Hello sports lovers, American Odds are live on web.”
Kalshi’s digital merchandise shop, meanwhile, sells $25 hats with the message, “What are the odds” (italics the company’s). It has also used the word “bet” in countless advertisements—Google’s transparency database for paid promotions lists a Kalshi text advertisement that ran until June 5 with the call to action, “Bet on NBA legally!”
Sterling didn’t dispute the accuracy of his quotation, transcribed by SBC Americas from the National Council of Legislators from Gaming States event and presented back to him by Sportico via email. But the attorney, who is not an employee of Kalshi, wrote that his remark was unrelated to what Kalshi shows on its website or in its marketing materials.
He said he only meant to tout the peer-to-peer trading format of prediction markets, which he said differs from sportsbooks that set betting lines.
“If Kalshi presents buy/sell interest in terms of American odds, that does not change the fact that Kalshi is not setting those odds,” Sterling said in an email. “The odds would reflect market sentiment in the event contracts available on its market (i.e., buy and sell interest).”
A Kalshi official said in a statement that the “odds” and “bet” advertisements have nothing to do with whether the company offers gambling.
“Any promotional materials or company correspondence referencing ‘betting’ in no way indicates that Kalshi is anything but a financial platform, or change our regulatory status,” the official wrote in an email. “In the same way that you can bet on a stock, derivative or a bond, you can bet on markets on Kalshi.”
Sports prediction markets are indeed structured differently from sportsbooks. Users can place “limit orders” that dictate the price at which they purchase or sell a contract tied to the outcome of an event, which is not possible on DraftKings or FanDuel. As an example, a user can tell the futures exchange to only fill a New York Mets to win “yes” order at a maximum price of $0.60, thus providing a level of control.
The alternative way to strike a deal on Kalshi is through what amounts to a buy- or sell-now option offered by an independent market maker. This enables users to jump in or out of a position immediately—important during live sports events when prices are volatile and quick trade execution is paramount.
Market makers offering these deals can be institutional funds, not just peers, which has drawn scrutiny from critics. Some analysts, such as Alfonso Straffon, have said the involvement of mega funds such as Susquehanna International Group make Kalshi more like traditional sportsbooks than advertised.
The presence of market makers is necessary for Kalshi’s liquidity and contributes to market integrity, but it does mean some contracts come at a premium price, University of Chicago distinguished service professor of operations management John R. Birge said in an email.
Dartmouth professor of economics Eric Zitzewitz said in an email that institutional market makers are more likely than retail traders to have advanced data models driving decisions. He said such a system is not “unfair” if users know what they are getting into.
The Kalshi official denied any conceptual tie between market makers and sportsbooks, writing “the role of market makers is to react to pricing, not to set or influence it.”
“Due to this, market makers play a fundamentally different role from that of bookmakers in one-sided markets,” the company official said. “Sportsbooks ingest data to set odds, manage risk and offer bets so that gamblers can wager against the house. Prediction markets do not set odds, those probabilities are dictated by our users when they purchase contracts on a yes or no side of a swap. Kalshi does not win when traders lose, or lose when traders win. This is a fundamental difference between prediction markets and sportsbooks.”
Kalshi wins regardless, collecting fees on every trade. That means getting as many users as possible to pile in is crucial. The company has partnered with brokers such as Robinhood to reach more financial portfolios. Kalshi’s user growth has been primarily driven by sports in recent months after the 2024 presidential election provided tinder for the platform last fall. Robinhood is bullish about that.
As Kalshi creates new topics for customers to put money on, such as Monday night’s Home Run Derby, maintaining liquidity via market makers remains a priority. Kalshi last year onboarded Susquehanna as an institutional market maker and in May announced a program for individual investors to contribute to the platform’s liquidity, too.
“Whether one squints enough to say a [prediction market exchange] that has market makers is a sportsbook or not, what really matters here is what the law says on who regulates the trading of swaps [event contracts],” Sterling, the lawyer representing Kalshi in court, wrote in a follow-up email.
Kalshi’s insistence that its contracts are distinct from sports gambling is potentially important for legal reasons. The company argues the contracts—even those involving single-game sports outcomes—are legitimate financial assets that provide an opportunity for risk management, price discovery and price dissemination. The answer to the betting debate may help determine who has regulatory authority over its platform, and in turn, whether the financial technology upstart can continue to exist in its current form in all 50 states.
So far, judges have sided with Kalshi that the Commodity Futures Trading Commission (CFTC), not state gaming regulators, should oversee the company under stipulations set by the Commodity Exchange Act. There are multiple cases already in appeal, though, and the issue could eventually reach the Supreme Court.
Kalshi CEO Tarek Mansour wrote on July 3 that his company is in “a brutal, bloody war” for “the right of prediction markets to exist.”
But one prediction market already does business without classifying itself as a financial tool. Sporttrade operates a sports event contract hub under the watch of state regulators in Arizona, Colorado, Iowa, New Jersey and Virginia. Sporttrade CEO Alex Kane told Sportico this year that it’s “ridiculous” to claim prediction markets are not sports betting.
The National Council on Problem Gambling (NCGP) says prediction markets generate the same addiction risks as betting. They worry Kalshi embedding with fintech mammoths like Robinhood only confuses consumers into risky practices.
“We can speak from the 50 years we’ve had in the field for helping people to gambling addiction, pointing them in the right direction to get help, and seeing how this works,” NCPG director of government relations and league partnerships Cole Wogoman said in a video interview. “Let’s look at what’s happening in practice and how people are interacting with the platform and the problems that are coming from that.”
The mixed messages also come from Kalshi itself.
As Kalshi officials and legal representatives signal in some forums that they do not offer gambling, the company’s marketing has sometimes suggested the opposite.
Last fall, Kalshi promoted its app in Apple’s App Store as a way to “bet the 2024 election.”
On Feb. 17, Kalshi’s official X account urged the user “TheJudge85” to wager on how many of the government’s employees President Donald Trump would cut in 2025. “Sounds like you should bet on it,” Kalshi wrote alongside a link to its site.
To a company recently valued at about $2 billion, there is nothing odd about this.
“This language is very common in the financial world; semantics do not alter the fact that structurally, Kalshi is a derivative contract maker (DCM), existing under the full and exclusive regulatory authority of the CFTC,” the Kalshi official said.