New York sues betting app Kalshi, claims illegal gambling scheme

Leaders of the Empire State on Friday accused the prediction market app Kalshi of running an illegal gambling operation. In a statement announcing a lawsuit against the app, state officials said Kalshi billed itself as a legal sports trading platform but functions as a gambling operation without obtaining proper state licensing. In its lawsuit filed in a New York court, the state asks the court to levy financial penalties against the app for breaking the law.

How does Kalshi work? The app allows users to place bets on future events, including sports games, election outcomes, and pop culture events. Kalshi calls itself a federally regulated prediction market and distinguishes itself from casinos.

Why does New York call it a gambling operation? An investigation by state Attorney General Letitia James’ office concluded that Kalshi qualified as a gambling operation because the outcome of the events that users place bets on hinge entirely on chance. Kalshi was functioning in New York without a licence from the New York State Gaming Commission, allowing the company to avoid the same tax obligations as other licensed casinos and mobile sports gambling platforms, Friday’s statement said.

New York officials also said Kalshi made itself accessible to users as young as 18, despite state laws barring anyone under age 21 from using mobile sports betting. The officials cited research suggesting online gambling causes mental and financial damage to young users. New York’s betting laws aim to protect children from underage gambling and combat gambling addictions, said Letitia James. Prediction markets like Kalshi are simply gambling platforms that harm New Yorkers, she added.

New York Gov. Kathy Hochul said in the Friday release that Kalshi’s choice not to comply with state laws will have consequences, because no company is above the law. The state’s lawsuit aimed to stop Kalshi’s unlicensed operation and enforce financial sanctions, including fines and restitution to users. The lawsuit is also asking for the company to forfeit all its allegedly illegal gains in New York.

How has the company responded? In a Friday statement to WORLD, Kalshi’s head of communications, Elisabeth Diana, characterized the lawsuit as political theater that would ultimately hurt New Yorkers. New York can’t shut down a federally licensed exchange, she said.

Dig deeper: Read Bekah Bernhardt’s report on people using Kalshi to bet on the 2024 elections.