The Supreme Court May Take Up Prediction Market Disputes

The US Supreme Court may soon enter the battle over prediction markets as conflicting court rulings and new petitions mean justices may have to judge whether sports-based event contracts fall under federal financial regulation or state gambling laws. While it is not certain whether the court will accept this case, a definitive ruling is becoming increasingly necessary. Lower Courts Have Produced Conflicting Rulings With the Supreme Court starting its new term next week, justices will decide what cases deserve their attention. Disputes around Kalshi, Robinhood, and Crypto.com, all of which have ventured into sports-related prediction contracts, may be on the agenda as several states have pushed back against their expansion. The legal question focuses on who can regulate such offerings. Prediction market operators contend that their contracts constitute financial derivatives regulated by the Commodity Futures Trading Commission (CFTC). State regulators and attorneys general counter that contracts based on sporting events are essentially a form of sports wagering and should be subject to state gambling laws. Adding to the confusion, courts have produced conflicting verdicts. In April, the Third Circuit ruled in Kalshi’s favor in its fight against New Jersey, concluding that federal law likely blocks the state from applying its regulations to Kalshi’s sports contracts. In August, the Ninth Circuit ruled the other way, allowing Nevada to enforce its gaming laws on sports event contracts offered by Kalshi, Crypto.com, and Robinhood. A Definitive Ruling Is Sorely Needed The National Council of Legislators from Gaming States (NCLGS) has also asked for the Supreme Court to get involved. The group filed an amicus brief supporting New Jersey’s petition for a re-review and argued that states should maintain control over gambling. NCLGS warned that a ruling blocking states from regulating sports event contracts could have unforeseen consequences on the broader market. The CFTC stands at the center of this argument, as prediction market companies argue that federal oversight gives the agency exclusive oversight over their contracts. The federal watchdog has so far sided firmly with operators, even taking legal action against states looking to restrict prediction platforms. The Trump administration has also supported this federal approach, further complicating this dispute. If the justices accept this case, they will ultimately have to set the boundary between federally regulated derivatives and the states’ long-established authority to regulate gambling. It is becoming increasingly clear that prediction markets have reached a point where federal and state regulatory systems have become dangerously intertwined.