NYS Sues Kalshi

**Brian Lehrer** (0:10)
It's The Brian Lehrer Show on WNYC. Good morning again, everyone. We've talked on the show before about prediction markets like Kalshi and Polymarket, places where you can bet, and bet is actually a controversial word here, we'll explain, but we'll say bet on things like whether or not the price of Bitcoin will rise or who will attend soccer player Cristiano Ronaldo's wedding. You can also bet on things like whether or not a bill in Congress will be signed into law or whether or not the Strait of Hormuz will open, or the release date for Grand Theft Auto 6
Yes, that's a real bet on Kalshi's website right now. A lot of listeners might wonder if is there really a difference between these prediction markets and traditional casinos or sports betting sites where you're also putting money down on various outcomes that you think may occur? Well, it looks like the state of New York is inclined to say, yes, it's betting and that matters legally. This week, New York State Attorney General, Letitia James and Governor Cathy Hokel announced a lawsuit against Kalshi for running what they see as illegal gambling operations, seeking as much as $36 billion in penalties from the company. A Kalshi spokesman called the lawsuit, quote, political theater from the leadership in our own state. We have a guest on this to explain. Joshua Mitts, a professor at the Columbia University Law School who specializes in corporate business and transactional law.
These days, he's got a special focus on prediction markets, and he is here to help us understand this case. Professor Mitts, thanks for joining us. Welcome to WNYC.

**Joshua Mitts** (1:49)
Thank you, Brian, and thank you for having me.

**Brian Lehrer** (1:52)
Kalshi allows people to make bets on future events. I just gave a weird array of examples, I guess. Sounds a lot like gambling. You win money if something happens, and you lose money if it doesn't.
At least to that point, what Kalshi said makes its business model different from a regular gambling company might need some explanation. So can you explain it?

**Joshua Mitts** (2:17)
Sure. Well, at some level, there is lots of activity under that definition, which could be considered gambling. Think about the stock market, where you make money if a stock price goes up, and lose money if a stock price goes down. So there has to be some difference between just taking a risk and making money or losing money. And what New York State is really zeroing in on is that Kalshi offers these contracts, which are connected to the outcome of sports and other kind of gaming-like activities. And this has really been the area of state regulation. So if you go, if you think about sports betting, casinos, these are areas where states have traditionally said this sort of activity, this kind of gaming activity where money is risked. That's really different from the broader category of risking your money in a financial market. And Kalshi's response is to say, we're not actually the equivalent of a casino.
We're a lot more like the stock market. We're a place where you can go on and buy and sell and trade. And the fact that some of these things happen to be related to sports outcomes or traditional gambling, betting activities, that's really beside the point.

**Brian Lehrer** (3:39)
One of the arguments that Kalshi makes as to why it shouldn't be regulated like sports betting is regulated, for example, is that the house doesn't make money. There's no house.
People hear this claim in the commercials for Kalshi and others. There's no house. You're trading, they use the word trading rather than betting, you're trading against other individuals.
So can you explain the difference between betting and trading as they're trying to convince us that that exists and how you see it in reality?

**Joshua Mitts** (4:16)
Well, that's why I use the stock market as an analogy, because I think Kalshi's argument does boil down to what people are doing is buying and selling contracts, and we're just a platform. We're just a facilitator. We're just a matchmaker between buyers and sellers.
It's not exactly, I think, 100% accurate, because Kalshi is benefiting from trading activity on their platform through their fee model. And so they are involved. They do have a financial incentive to encourage trading. The fact that they're not on one side or the other is really beside the point when it comes to their financial incentives. But they are correct that the platforms at their core are a two-sided market. And by that, I mean for every dollar that someone is willing to bet that an outcome will happen, there's going to be a dollar on the other side where someone is betting that the outcome will not happen. And so it is true that these contracts reflect essentially zero-sum transfers.