Nevada Escalates Legal Action Against Kalshi, California Joins Multi-State Challenge

Prediction market operator Kalshi is facing intensified legal scrutiny from two major West Coast states, Nevada and California, regarding its compliance with state gambling regulations.

Nevada Seeks Contempt Order

Late last week, the Nevada Gaming Control Board (NGCB) announced it has petitioned the state's First Judicial District Court to find Kalshi in contempt. The NGCB alleges that Kalshi has failed to adhere to a court order requiring it to prevent Nevada-based users from participating in sports, entertainment, and election contract trading on its platform. The initial preliminary order was issued on April 3 and subsequently affirmed with an amended order on May 18. Despite these directives, the board claims Kalshi remains non-compliant.

The state's court filing indicates that Nevada is seeking daily penalties of "at least $120,000" for each day Kalshi remains in violation. Kalshi reportedly responded to the original order by blocking users based on their IP addresses, a method Nevada argues is insufficient. Court documents suggest that this "homegrown 'solution'" cost $190,000 but is deemed unreliable for accurately determining user locations, unlike the comprehensive geofencing technology standard in the US gambling industry. NGCB Chairman Mike Dreitzer underscored the state's commitment, stating, "We will continue to vigorously enforce Nevada law to safeguard gaming in our state."

California Bolsters Amicus Coalition

Concurrently with Nevada's announcement, California Attorney General Rob Bonta's office revealed that the state has joined a coalition of 37 attorneys general. This group filed an amicus brief in support of Ohio in Kalshi's ongoing legal battle against the state, currently before the US Court of Appeals for the Sixth Circuit. This marks the seventh instance of California joining multi-state efforts against prediction markets, including a similar brief filed against Kalshi in its case with Tennessee, which has been consolidated with the Ohio proceedings.

Attorney General Bonta emphasized the importance of upholding state regulatory authority. "This filing is representative of our bipartisan commitment to protecting state regulatory authority over illegal, unregulated gambling operations," Bonta commented. He further stressed that "Prediction markets cannot use federal loopholes to bypass state consumer protection, sports gaming, and gambling laws." While California has not initiated direct litigation against prediction markets, three state gaming tribes—Blue Lake Rancheria, Chicken Ranch Rancheria, and Picayune Rancheria—filed suit against Kalshi last year, citing violations of the federal Indian Gaming Regulatory Act. An appeal in that case is currently active.

Political Ramifications for State Leaders

These legal campaigns carry significant implications for the officials leading them. Nevada Attorney General Aaron Ford, who is spearheading his state's efforts, is presently campaigning for governor. Having secured the Democratic primary earlier this month, Ford will challenge Republican incumbent Joe Lombardo in November. A victory against prediction markets, perceived as a considerable threat to Nevada's established casino industry, could provide a notable boost to his campaign.

Similarly, California's Attorney General Rob Bonta is seeking re-election this year. His increasing engagement in gaming-related issues, including the Kalshi briefs, has aligned him with California's influential and well-resourced gaming tribes. Tribal casinos in California and northern Nevada reported $12.1 billion in gross gaming revenue for fiscal year 2024, highlighting their economic significance.

In response to Nevada's claims, Kalshi spokesperson Jacki McGavick posted on X, asserting the company's compliance with the court order. She added, "If the NGCB had a genuine concern regarding a technological flaw in our system, they would have given us the information we need to fix it, yet they haven’t."