Another Kalshi bid to preemptively stop a state from enforcing gambling laws fell short Tuesday in Iowa, as another district court judge meticulously rebutted the company’s legal defense for sports event contracts.
Judge Stephen Locher in the U.S. District Court for the Southern District of Iowa rejected Kalshi’s request for a preliminary injunction to prevent Iowa’s attorney general and gaming regulators from pursuing legal action. Locher concluded Kalshi was not likely to succeed in persuading a court that its sports markets fall under the definition of “swaps” within federal law, concurring with most other judges at the state and federal level in recent months.
“In a situation where Kalshi bears the burden of proving that injunctive relief is appropriate, this is nowhere close to enough, particularly when balanced against the interests of state officials and the general public in the enforcement of duly enacted gambling laws,” Locher wrote in conclusion.
The loss in Iowa marked the second court defeat of the day for Kalshi. Earlier Tuesday, the Tenth Circuit Court of Appeals rejected the prediction market operator’s request for injunction pending appeal to stop Utah from applying its gambling laws following an August district court decision in the state’s favor.
How Kalshi lawsuit in Iowa arrived here
Kalshi filed for the injunction in March following an in-person meeting between the company’s director of state relations and Iowa Attorney General Brenna Bird and her staff that Bird later acknowledged was “like a deposition.” That contentious meeting informed Kalshi’s belief that the state planned to take action under existing gambling laws.
Locher, however, ruled that Kalshi did not exhaust its avenues to seek more information from Bird or the iowa Racing and Gaming Commission before seeking an injunction. He further said Kalshi either knew or should have known regulators would question its sports offerings.
“Kalshi should have known all along that its sports-related event contracts might be interpreted by state regulators as sports gambling; indeed, the company has characterized itself in an advertisement as ‘the first app for legal sports betting in all 50 states.’
“Nonetheless, Kalshi charged ahead with its business without, apparently, making any effort to learn whether the Iowa Attorney General or IRGC viewed the company’s sports-related event contracts as illegal gambling. To the extent it would be expensive in these circumstances for Kalshi to deploy new technology or change aspects of its business to ensure compliance with Iowa law, this is a problem of the company’s own making. It should have proceeded with greater caution.
“Moreover, although Kalshi’s preliminary injunction filings are heavy on hyperbole regarding irreparable harm, they provide virtually no concrete information about the extent of the risk to the company if injunctive relief is denied.”
How many people in Iowa use Kalshi?
One of the ruling’s more revealing lines highlights Kalshi’s referenced attempt at defining the scope of its Iowa operation. Specifically, Kalshi said that it has “nearly 42,000 users in Iowa with millions of dollars in open contracts.”
Locher further takes apart Kalshi’s claim that forcing the company to close those open positions would cause reputational or real-world harm.
“Kalshi does not specify how many of its contracts relate to sports and thus would be impacted by an enforcement action by Attorney General Bird or the IRGC Defendants. Kalshi also does not explain how often it ends up with exposure in excess of the value of a contract due to market fluctuations and the buying and re-selling of the contract before it settles.
“Indeed, Kalshi does not even give a real-world example of this scenario, instead providing a generic example in which the odds of an event happening shift from ninety percent in one direction to ninety percent in the other. It seems highly unlikely that the odds of, say, a team winning a football game would shift so dramatically before the game is played.”
