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Supreme Court pulled into prediction markets jurisdiction fight

The battle between state regulators and federal agencies over prediction markets has reached a new stage. New Jersey has asked the US Supreme Court to review the case, seeking a final ruling on which authority should oversee sports-linked event contracts.

The petition targets an April decision by the US Court of Appeals for the 3rd Circuit. That ruling treated all event contracts as derivatives regulated at the federal level by the CFTC (Commodity Futures Trading Commission). New Jersey argues that approach could allow sports betting offered on a CFTC-registered market to escape state gambling laws.

Jennifer Davenport, speaking for New Jersey, argued that Congress did not silently exempt the sports betting industry from state law. The state's petition says the lower court ruling is both important and wrong.

Split rulings in federal courts raise the stakes

The case is being watched closely because of conflicting decisions in lower courts. Last Friday, the 9th US Circuit Court of Appeals said sports-linked event contracts are not CFTC-regulated “swaps” and rejected an injunction request by Kalshi and Crypto.com against the Nevada Gaming Control Board.

That puts the 9th Circuit at odds with the 3rd Circuit. In a note on Monday, Bank of America said the split gives the Supreme Court a chance to take up the case. The note added that the Court could still wait until next year, given ongoing cases in other federal appeals courts.

What are the sides arguing?

Kalshi told CNBC that its platform is a nationwide financial exchange and cannot be regulated by 50 different authorities. The company also said lower courts have ruled that the CFTC's exclusive authority overrides state law.

By contrast, 44 state attorneys general argue that these contracts are effectively sports bets and therefore fall under state jurisdiction. The distinction is critical to whether prediction markets are treated as financial products or as gambling matters.

Stocks jump after the filing

The legal move quickly spilled into the market. Following New Jersey's petition, shares in DraftKings and Flutter Entertainment, the parent company of FanDuel, rose more than 5%.

  • Investors priced in the possibility that the ruling could affect the competitive balance for sports betting operators.
  • The outcome could redraw the line between CFTC-supervised platforms and state-licensed betting companies.

As a result, the case is seen not only as a legal jurisdiction fight but also as a development that could shape the future of the US sports betting and financial contracts markets.

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