- Prediction markets face a Supreme Court petition over federal and state authority.
- The Third and Ninth Circuits issued conflicting rulings on sports event contracts.
- DraftKings and Flutter shares gained more than 5% after New Jersey filed.
Prediction markets face possible Supreme Court review after New Jersey challenged federal control of sports event contracts. The state wants the justices to reverse an April ruling that favoured Kalshi. That decision found federal law likely prevents New Jersey from applying its gambling rules. Kalshi lists the contracts on a CFTC-licensed exchange.
Prediction markets dispute turns on federal preemption
The Third Circuit ruled 2-1 that Kalshi’s sports contracts qualify as swaps under the Commodity Exchange Act. It found the CFTC has exclusive authority over contracts listed on designated contract markets.
New Jersey’s petition rejects that interpretation. Attorney General Jennifer Davenport said Congress never silently exempted the sports-betting industry from state law.
The state says prediction markets must follow state gambling laws, including licensing, age and consumer-protection rules. Forty-four state attorneys general have also supported state oversight.
Kalshi argues that it operates a nationwide financial exchange and cannot answer to 50 separate regulators. Spokesperson Dani Lever said the company is confident in the lower courts’ decisions.
Conflicting federal rulings leave prediction markets split
The Ninth Circuit created the split on August 28 while reviewing Kalshi’s dispute with Nevada. Its unanimous ruling allowed Nevada regulators to require a state gaming licence.
That court found federal commodities law likely does not override Nevada’s rules for sports wagers. The decision conflicts with the Third Circuit’s reading of federal law.
The Nevada case returned election contracts for further district-court review.
Other prediction markets could face different requirements across the country if the split persists. Several related cases also await decisions in lower federal courts.
A circuit split can support Supreme Court review, although the justices are not required to accept the petition. Bank of America said the court could wait until next year.
New Jersey previously helped secure the 2018 ruling that allowed states to legalize sports betting. Sports wagering now operates in 39 states, while California and Texas prohibit it.
Shares of DraftKings and Flutter Entertainment, FanDuel’s parent company, each gained more than 5% after New Jersey filed its petition.
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