Prediction market, Kalshi, reportedly took more than $40B in World Cup trades, despite not having to pay a cent in sports betting taxes. The figure is the latest in a continued rise in prediction market popularity, but it also highlights a continued discord between the platforms, the federal government, US states, and traditional sports betting companies.
Although it was mired by controversies surrounding hydration breaks, half-time shows, and political interventions, this year's World Cup, staged jointly by the US, Canada and Mexico, can be considered a roaring success.
World Cup betting
Nearly three times as many Americans tuned in to this year's final as they did in for the 2022 final in Qatar. FIFA is expected to announce that the event raised $15B in revenue, a significant increase from the forecasted $11B.
While that figure breaks all previous World Cup records, it is dwarfed by sports betting numbers. Sportsbooks took an estimated $500B in bets, while the rising star of the prediction market continued its ascent.
Kalshi is reported to have taken more than $40B in World Cup trades and reportedly added three million new members to its platform. While that's good news for Kalshi, it's not so positive for state coffers.
Prediction market legal disputes
Prediction markets are treated as betting companies in most markets, globally, but in the US they are considered trading platforms. They fall under the remit of the CFTC and are not subject to state-level gambling laws. Not only does this mean they can operate in states where betting is illegal, but it means they avoid paying state-level sports betting taxes.
Tax rates vary by state, but are as high as 51% in New York, Rhode Island, and others. Not only are states directly missing out on these taxes but prediction platforms are likely taking customers away from sports betting sites that do pay taxes.
A lot of states have taken umbrage with this classification. Nevada, Massachusetts, Maryland, and other states have moved against the platforms, blocking or restricting their use. In response, the CFTC and the platforms themselves have taken action against several states.
Kalshi is winning so far...
Most recently, New York District Judge, Analisa Torres, ruled against Kalshi's bid for an injunction, effectively declaring that the state's gambling laws apply to Kalshi.
Kalshi hasn't helped itself in the case. This month, in a hearing with the national gaming law group, Kalshi attorneys were forced to defend the company's use of terms like 'bet' and 'odds' in their marketing.
Regulators argued that the terms are associated with sports betting, rather than contract trading, and that Kalshi is using them in a bid to attract sports bettors. Kalshi's lawyers said that the use of those terms does not mean they are offering betting products.
Legal wrangling continues in many states across the US. The World Cup has shown there is a growing demand for these products, and based on the latest figures, it is highly unlikely Kalshi is going to disappear into the background.
