Michigan Attorney General Dana Nessel’s office this week announced it is suing the parent company of Kalshi, a “prediction market platform” that allows users to place wagers on future events.
Nessel’s office alleges that Kalshi has circumvented Michigan’s gambling laws by offering users to trade contracts based on whether specific events will happen, acting and operating like a gambling platform and should be subject to the same state laws that other online gaming apps are.
“Entities like Kalshi continue to circumvent the gaming prohibitions imposed by (state law) and, in so doing, threaten the health, safety, and welfare of Michigan citizens,” the complaint states.
But what is Kalshi? Here’s what to know.
What is Kalshi?
Kalshi is a first Commodity Futures Trading Commission (CFTC) exchange dedicated to trading on the outcome of future events.
What are prediction markets?
Prediction markets are platforms that allow you to trade shares on specific outcomes, according to Meta Mask.
Users place a money-backed guess to predict the outcomes of events across sports, politics, economics and pop culture, among others.
What are current props available?
Some Kalshi bets listed on its website, as of Friday morning, include wagers on the 2028 Democratic nominee for president, a men’s college basketball champion, a 2028 U.S. presidential election winner, and others.
Do I need an account to bet?
Yes, to “trade” Kalshi requires its users to create an account using their email.
How do contract purchases make money?
When you make a transaction on Kalshi, according to the Action Network, you’re buying contracts. Each contract costs anywhere from 1 to 99 cents, and winning contracts settle at $1 and losing contracts settle at $0.
So a single 13.8 cent contract will settle at $1 if it wins, meaning you get 86.2 cents in profit, plus your original 13.8 cents back.
You’re generally not going to be buying just a single contract and winning $1, but if you buy 100 or 1,000 or 10,000 contracts, the same payout math still applies.
Because all of Kalshi’s markets are two-sided, there is no “oddsmaker” or “house,” at least in the traditional sense. Instead, you’re trading against other users, and the prices get made based on what people are buying and selling. All users can either buy an outcome, or sell it.
Kalshi makes money through fees paid by traders, which vary based on how much of a longshot the contract is.
Why Kalshi claims its different than sports betting apps
Kalshi argues that while sports betting operates like a casino, where everyone bets against the “house,” Kalshi works like the stock market, with customers trading against other customers.
Why Kalshi can offer sports-related event contracts in states where sports betting is prohibited?
Kalshi argues that since its regulated by the CFTC and federal law, they are not subject to state laws and regulations.
Why do people have an issue with prediction markets?
According to reporting from the New York Times, right before the U.S. struck Iran on Feb. 27, more than 150 accounts placed hundreds of bets of at least $1,000 before the U.S. strike would happen by the next day.
Experts told the Times that the late bets mirrored insider trading.
Additionally, hours before U.S. Army Delta Force operators captured Venezuelan President Nicolás Maduro and his wife on Jan. 3, an anonymous trader wagered more than $30,000 on the prediction site Polymarket that Maduro would be removed from office by Jan. 31, reporting from USA Today shows.
The bettor walked away with reportedly more than $400,000 in winnings.
Nessel asserts that Kalshi offers an online operation that enables Michigan residents to engage in sports betting under the guise of trading event contracts. The lawsuit alleges the business constitutes unlicensed gambling and that Kalshi conducts this business in Michigan without the licensing approval of the Michigan Gaming Control Board in violation of the LSBA.
The lawsuit asks the Ingham County Circuit Court to declare Kalshi’s internet sports betting operation a common law nuisance and to issue a permanent injunction and order of abatement enjoining and restraining Kalshi from engaging in or advertising its internet sports betting operation in Michigan.
USA Today and Detroit Free Press contributed reporting.
Jalen Williams is a trending reporter at the Detroit Free Press. Contact him at jawilliams1@freepress.com.
This article originally appeared on Detroit Free Press: Nessel is fighting Kalshi. How does the prediction market work
Reporting by Jalen Williams, Detroit Free Press / Detroit Free Press
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