Prediction market Kalshi is the subject of a class action lawsuit that claims it’s been operating an illegal unlicensed sports gambling platform that “dupes consumers into thinking they are legally gambling against other consumers, when they are actually gambling against the house.”
According to the action, “Since January 2025, New York-headquartered Kalshi has been classifying online sports bets on its platform as ‘event contracts,’ including in states where online sports betting is categorically illegal.”
It continues, “Consumers place bets on Kalshi on the outcome of sports games, individual player metrics, team results, and or a combination (parlays). These bets do not differ materially from bets available at casinos or sportsbooks. Indeed, Kalshi markets its product as betting on sports.”
In New York, it’s illegal to operate a sports betting platform without a license. And Kalshi doesn’t have one.
As a result, the suit, filed in the Southern District of New York, argues that the Polymarket rival, which recently selected Coinbase to custody USDC for event-based contracts, has “violated gambling laws, engaged in illegal deceptive activity, and unjustly enriched itself at the expense of millions of consumers.”
Listed plaintiffs Crystal Pelayo, Jacob Tingle, Isaiah Esquibel, Gino Gadaleta, Brice Gambill, Raleigh Melancon, and Micah Parker are hoping to recover their wagers along with costs and attorney’s fees.
Read more: Kalshi outpaces Polymarket after pair feature in South Park episode
Kalshi’s less-than-subtle marketing
The suit cites Kalshi’s marketing efforts, which include ads that encourage users to “Bet on the NFL,” asserting that it’s “Legal in 50 states.”
As detailed in the filing, Kalshi’s illegal online sportsbook is its primary source of revenue, with 90% of the platform’s bet volume in September 2025 coming from sports betting.
Indeed, during this time, US gamblers placed more than $2 billion in sports bets.
One of the allegedly misleading posts from one of Kalshi’s official social media accounts.Read more: Court rules prediction market Kalshi’s US election bets are legal
Last month, the New York State Gaming Commission sent Kalshi a letter informing it that it was operating an unlicensed mobile betting platform in violation of New York law.
As such, it demanded that the platform “cease and desist immediately from illegally operating, advertising, promoting administering, managing or otherwise making available sports wagering and/or a mobile sports wagering platform in New York.”
However, as the suit points out, “Kalshi continues to operate its illegal sports betting platform out of its New York headquarters to residents of all states.”
Kalshi’s path to illegal sports betting
The suit details how Kalshi developed from a simple prediction market into a fully-fledged (and allegedly illegal) sports betting platform.
“When Kalshi began offering markets in June 2021,” the suit claims, “it offered binary yes-or-no contracts about whether an event would occur, such as ‘will a recession start by the second quarter of 2022.’”
“Back then,” it continues, “Kalshi distinguished itself from casinos by arguing ‘the economic usefulness of hedging outcomes and market pricing are two elements that make Kalshi different from a casino.’
“It also asserted that it only made its money from a ‘transaction fee,’ rather than casinos where ‘the revenue they make is out of their customer’s losses.’”
However, it explains, in 2024, Kalshi started offering political election contracts, allowing consumers to bet on which candidate would win the 2024 presidential election, or which party would control Congress.
These bets drew significantly more consumers to Kalshi, and in October 2024, bettors wagered more than $100 million on Kalshi’s election markets.
Then in January 2025, the suit claims that “Kalshi got greedy” when it pivoted to offering illegal sports betting falsely styled as event contracts.
At this time, Kalshi’s official X account started to claim that there would be “sports trading” in all 50 states and marketed its products as having “no house,” and “Live trading during the game.”
Kalshi allegedly “duped” gamblers into thinking they weren’t gambling against the house.Read more: Polymarket criticized for racist post targeting fake ‘baddies’
By September 2025, the platform, says the suit, expanded further into illegal sports gambling when it began offering “categories that mirror traditional sports betting, including bets related to point spreads, overs/unders, player proposition bets (such as bets on the first player to score a touchdown), and most recently, same-game parlays.”
It goes on to allege that Kalshi tries to disguise its illegal gambling operation by using non-gambling terms like “sports trading” or “build your combo” so consumers do not think they are gambling.
In reality, it claims, “‘sports trading’ is just plain sports betting, and Kalshi’s ‘build your combo’ feature is just a classic parlay, where consumers combine multiple bets against the House, and are only paid out if they win all of them.”
The plaintiffs have requested a trial by jury of all claims that can be so tried.
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Source: https://protos.com/unlicensed-polymarket-rival-kalshi-accused-of-duping-users-in-new-lawsuit/
