Matt Levine wrote about this very thing in a recent Money Stuff (October 12):

"Kalshi gaming regulation

You know what's funny? There is a real legal dispute about whether Kalshi and other prediction markets should be allowed to offer sports bets without complying with state gaming laws. Kalshi and the US Commodity Futures Trading Commission take the view that (1) Kalshi is federally regulated by the CFTC, (2) sports bets are "swaps" under federal regulation, (3) federal regulation preempts state gaming regulation, so (4) buzz off, states. Many states disagree, and there has been litigation around the country. (We have talked about this several times.)

Two federal appellate courts have sided with the states, but another has sided with Kalshi. The state that lost that last case (New Jersey) is asking the Supreme Court to review it, and last week 39 states filed a brief supporting New Jersey's request. So did the National Football League. I assume that the Supreme Court will take the case. I have no idea what it will decide. I think this is a tough question, courts have disagreed on the answer, it is all pretty politically charged, the Supreme Court can kind of do whatever it wants, and I have no real model of what it will want. I could not tell you the probability that Kalshi will win and get to continue offering sports bets.

So, out of muscle memory, I fire up Kalshi to check that probability. "Supreme Court Will Rule Kalshi Sports Bets Are Legal, Yes/No," where is it? But Kalshi doesn't list that contract![1] Here's "A Kalshi Contract on the Legality of Kalshi Contracts," by Joseph Grundfest:

'This note proposes that Kalshi list a "Kalshi Sports Legality" contract indexed to the outcome of United States Supreme Court litigation addressing whether Kalshi's sports-indexed contracts are federally regulated in a manner that preempts state law. Kalshi has previously listed at least 16 contracts indexed to Supreme Court determinations. No rule or regulation prevents Kalshi from listing the proposed contract. The proposed contract would provide a market estimate of the probability that the Supreme Court rules that Kalshi's sports-indexed contracts are legal. The contract would thereby create valuable hedging opportunities for Kalshi investors. It would also create hedging value for Kalshi customers who might lose access to Kalshi markets. These hedging rationales are more substantial than rationales Kalshi presents to support other Kalshi contracts, such as contracts indexed to parlays or to specific in-game events, such as whether the first play in a football game leads to a touchdown.'

I mean, sure, of course. You and I and Joseph Grundfest can propose sarcastic Kalshi event contracts, but Kalshi doesn't have to list them. Hypotheticals!

If Kalshi listed this contract, and it traded in reasonable volume and showed a [90%][10%] probability of Kalshi winning, would that make it [more][less] likely that Kalshi actually would win? Would the prediction market implied probability affect the outcome? Would talented appellate lawyers look at the market and think "oh Kalshi is definitely going to [win][lose], so I should join [their][the other] legal team"? Would the Supreme Court justices, or their clerks, look at this market and think "ah, the smart money is that Kalshi will [win][lose], so that's probably right?" People have concerns like this about prediction markets on elections: A prediction market showing one candidate winning might drive money and attention and support to that candidate and become self-fulfilling. And here is a Wall Street Journal article about the effects of prediction markets on juries: "If millions are wagered on the belief that a defendant will be acquitted," it asks, "could that make a jury more reluctant to convict?" I don't think that the Supreme Court exactly works like that, but on the other hand the Supreme Court, like an election or a jury, is a mechanism for aggregating the votes of several humans, so maybe it works a little like that. If it did work like that, and it showed a 10% probability of Kalshi winning, would Kalshi delist the contract? (Does the lack of this contract suggest something about its expected probability?)

If it did work like that, and it showed a 10% probability of Kalshi winning, could Kalshi, you know, buy a bunch of this contract and push its probability up?

All that aside, if Kalshi listed this contract, could it hedge its sports gambling risk by betting against itself on its own market? Discuss!"