Tarek Mansour has a simple pitch for why Kalshi shouldn’t be regulated as gambling. His platform is a peer-to-peer exchange. Customers bet against each other, Kalshi takes fees from both sides, and the house has no stake in the outcome. It’s a financial market, not a casino.

Aaron Brown, a Bloomberg Opinion columnist and former head of financial market research at AQR Capital Management, says that argument has a problem.

It’s the same business model organized crime bookmakers ran for decades before the FBI shut them down.

The Mob Ran A Balanced Book Too

Brown points out that the point spread, invented in the 1940s, let bookmakers attract roughly equal action on both sides of any sporting event.

The outcome was irrelevant to profitability. Bookmakers collected about 10% vigorish from losers, netting roughly 5% of total action no matter what.

By the 1970s it was a national market with a single price set weekly out of Vegas.

The FBI spent a decade dismantling those operations. Nobody involved claimed the business was unregulated because the fee structure was fair.

A $1.1 Trillion Market To Fight Over

Whether Kalshi is a financial exchange or a sportsbook with a CFTC license is now the biggest regulatory fight in American gambling since the Supreme Court struck down the federal sports betting ban in 2018.

The core legal question is whether the federal Commodity Exchange Act preempts state gambling laws as they apply to sports contracts traded on CFTC-licensed exchanges.

The Third Circuit said yes, ruling that New Jersey cannot regulate Kalshi’s sports contracts.

The Trump administration is pushing the same argument, suing Arizona, Connecticut and Illinois to stop them from enforcing state gaming rules against prediction markets.

But the courts are split.

A Nevada judge blocked Kalshi from operating in the state, and Arizona went further, filing criminal charges. The Ninth Circuit hears oral arguments April 16, and if it reaches a different conclusion, this may end up at the Supreme Court.

Bank of America estimates the U.S. sports event contract market could hit $1.1 trillion in annual volume.

Kalshi raised $1 billion at a $22 billion valuation last month, making it worth more than Flutter Entertainment (NYSE:FLUT) and DraftKings (NASDAQ:DKNG).

If prediction markets are gambling, Kalshi needs 50 state licenses and the $22 billion valuation collapses. If they are financial instruments, the CFTC has exclusive jurisdiction and Kalshi operates nationwide on a single federal charter.

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