Kalshi announced it had generated over $538 million in sports event contracts betting this past weekend, causing the stock prices of US-licensed sports betting industry powerhouses FanDuel and DraftKings to tumble.
Boost in Business
New York City-based Kalshi is an American financial exchange and prediction market that has been causing a stir among sports betting operators and state regulators.
Governed and regulated by the Commodity Futures Trading Commission, with Donald Trump Jr. on its board of advisors, Kalshi has successfully argued that because it is federally licensed, it does not have to abide by state regulators.
Therefore, Kalshi has freely operated in all 50 states, including those like California and Texas that have not launched a sports betting industry, much to the chagrin of regulators and licensed sportsbooks.
Historically known for facilitating trades on commodities like gold, silver, and pork bellies, derivative future trading platforms led by Kalshi expanded its reach last November by offering presidential election betting, something licensed sportsbooks are prohibited from doing.
Unlike traditional sportsbooks, Kalshi is not the house and does not charge a vig for lost wagers, but instead acts as a broker between buyers and sellers of these contracts and charges a transaction fee. That is one of the chief distinctions that has allowed it to win legal rulings, as well as being federally regulated by the CFTC.
Sportsbook Stocks Tumble
FanDuel and DraftKings control over 70% of the nationwide sports betting market but can only operate in states that have launched a sports betting industry. The two biggest and most fertile markets are California and Texas, but neither state has approved sports betting.
Naturally, sportsbooks would very much like to operate in those markets, but are prohibited by law. However, Kalshi can operate in both of those states and the 48 others unimpeded due to its federally regulated status, which supersedes a state’s authority.
This scenario has been played out several times in federal court, with Kalshi scoring legal victories each time.
Its one setback was in a Maryland state court, but this legal tussle is far from over, and the company has successfully defended itself against cease-and-desist letters from attorneys general of several states.
Yet, with the advent of college and NFL football, business is picking up as word is getting around that Kalshi and other futures platform forms like Polymarket are a viable way to make a bet, especially in those states that prohibit it.
This has had a deleterious effect on stock prices for FanDuel and DraftKings, which saw their stock prices drop 8.6% and 6.5% in Tuesday morning’s trading session. A rough estimate purports that Kalshi is pulling between 5% and 10% of the sports betting market away from traditional sportsbooks, and the football season is still relatively young.
Several legal issues remain, but right now, people are becoming aware of an alternative way to bet on sports, and Kalshi is leading the charge.
