Utah sues Kalshi, saying it’s ‘the manager of a back-alley gambling den’

Utah has initiated legal action against Kalshi, accusing the prediction market platform of engaging in what the state describes as a “brazen pattern of unlawful conduct.” The state is seeking a court order to prohibit the company from accepting bets within its borders and is requesting the implementation of a geolocation tool to enforce this ban. Additionally, Utah is demanding that Kalshi return the millions of dollars it has earned from fees related to bets placed by residents.

Attorney General Derek Brown emphasized that the lawsuit is aimed at the companies involved, not at the over 32,000 Utah residents who have verified accounts with Kalshi. “Let me be clear: It’s against the companies,” Brown clarified. “It’s not against you.”

Gambling is prohibited in Utah under the state constitution, and the complaint, filed on Tuesday in state court, asserts that Kalshi is “well aware” of this legal framework. The lawsuit names Kalshi, four of its subsidiaries, and two Pennsylvania-based trading firms that provide pricing and liquidity for the platform.

Despite Utah's stringent gambling laws, several companies have operated in what they consider a legal gray area. Kalshi and similar platforms characterize their event contracts as financial “swaps” that are approved by a federal trading commission. However, the state argues that Kalshi operates similarly to “the manager of a back-alley gambling den,” as it acts as the market maker, facilitates bets, and retains a portion of each wager as payment.

According to the complaint, Kalshi has a designated entity responsible for finalizing and settling bets, including making payouts. This indicates that the platform is not merely a third-party trading venue. “It is administering a closed-loop wagering system,” the complaint states, “where it creates the games, handles the bets, and pays out the winners.”

Legal representatives for Kalshi, who are currently involved in a federal lawsuit against the state, did not provide immediate comments regarding the lawsuit on Tuesday. In previous statements, company representatives have described similar lawsuits as “political theater,” asserting that states cannot simply shut down a federally licensed exchange.

While Utah is currently targeting Kalshi, Brown has warned other companies employing similar models to comply with Utah law.

Initially, the complaint notes that Kalshi offered “wagers tied to traditional financial instruments.” However, by 2024, the distinction between its operations and traditional gambling became unclear once the platform began offering sports trading and incorporated language specifically related to betting on professional sports.

Kalshi now presents a wide array of wagers, referred to as event contracts, and the complaint indicates that the company is “regularly” introducing new types. During a recent summer period, it reportedly had between 100,000 and 300,000 open wagers, termed markets, available each day.

The state claims that these event contracts are “indistinguishable” from the types of bets offered by traditional sportsbooks, including proposition bets, parlays, and point spread betting. Aside from sports, the complaint details other wager categories available on Kalshi, such as:

• Political events, including bets like “Blue wave this year?”
• Political scenarios, such as “[President Donald] Trump’s approval rating Friday”
• Cultural predictions, like who will headline Coachella in 2027
• Wagers on mentions, such as whether Trump will mention Arizona during an investment announcement

Kalshi has reportedly generated between $30.6 million and $61.2 million in fees from Utah residents' wagers, while residents have collectively lost around $5.5 million. Brown described these figures as “general numbers,” indicating that further details will emerge as the state collects more information ahead of a potential civil trial. If Utah is successful in its pursuit of restitution, Brown noted that there is currently no plan for how to allocate those funds.

Utah's lawsuit is driven by concerns over the “significant and substantial ongoing harm to a significant number of Utahns,” prompting the state to file the lawsuit in the 3rd District Court. Brown conveyed a message to young individuals targeted by online trading apps, warning them that these companies are not their allies. “They’re not helping you invest. They’re not providing you with insight or opportunity,” he stated. “They are engineered to do one thing and one thing alone, and that is empty your wallet.”

He urged individuals experiencing financial losses to seek assistance through the National Problem Gambling Helpline by calling or texting 1-800-697-3738 or by visiting 1800myreset.org.

This legal action follows earlier disputes between the state and Kalshi, including a preemptive lawsuit filed by Kalshi earlier this year, which claimed that the federal government’s Commodity Futures Trading Commission has jurisdiction over its markets. In August, a federal judge ruled in favor of Utah, bolstering the state's authority to regulate prediction markets. Kalshi has since appealed this decision to the 10th U.S. Circuit Court of Appeals, which denied the company’s request to block enforcement of Utah’s laws during the appeal process. The appeal remains pending.

Utah is not alone in its legal battles with Kalshi. Numerous states, regardless of political affiliation, have initiated lawsuits against the company and other prediction market platforms, seeking clarification on whether these markets fall under state gambling regulations. In July, Brown joined 43 other state attorneys general in signing a letter criticizing these platforms as a “new form of casino” that exploits vulnerable individuals, particularly young people.