New Jersey has requested the U.S. Supreme Court to determine whether the authority to regulate prediction markets lies with individual states or the federal government. This appeal comes in light of conflicting decisions from two federal appeals courts regarding contracts related to sports events.
The state's petition contests an April ruling by the 3rd U.S. Circuit Court of Appeals, which concluded that event contracts fall under the category of derivatives and are therefore regulated federally by the Commodity Futures Trading Commission (CFTC).
In contrast, the 9th U.S. Circuit Court of Appeals recently arrived at a different verdict, denying Kalshi and Crypto.com’s requests for injunctive relief against the Nevada Gaming Control Board. The Ninth Circuit stated that “Kalshi’s sports event contracts exhibit characteristics typical of sports betting.”
This divergence in rulings has resulted in a split among the circuits, potentially prompting the Supreme Court to clarify which entity holds regulatory power over prediction markets.
New Jersey Attorney General Jennifer Davenport emphasized the need for the Supreme Court to address this matter, asserting that Congress did not intend to exempt the sports-betting sector from state regulations.
The petition from New Jersey contends that companies assert “state sports-gambling laws become irrelevant” when sports bets are placed on a CFTC-registered platform. “The decision by the Third Circuit, while significant, is fundamentally flawed,” the petition argues.
Kalshi, on the other hand, expressed confidence in the previous court decisions. “We disagree with New Jersey’s position. Kalshi operates as a nationwide financial exchange and cannot be overseen by 50 different regulatory bodies,” stated Kalshi spokesperson Dani Lever.
Lever further noted that both the Third Circuit and the District of New Jersey supported Kalshi’s stance, citing that the CFTC’s exclusive authority supersedes state regulations.
A bipartisan group of 44 state attorneys general has contended that contracts related to sports events should be classified as sports betting and fall under state jurisdiction.
Bank of America indicated that the Supreme Court may delay hearing the case until next year, as similar cases are still pending in other federal circuits. “Based on discussions with legal experts, we believe the Supreme Court might wait until next year to address this matter due to ongoing cases in other circuits,” the bank mentioned in a report.
This legal dispute could have broader implications for consumer protection, state tax revenues, and the regulatory landscape of prediction markets, which handle billions of dollars in trading volume weekly.