After months of legal maneuvering between state gaming regulators, prediction markets, and the Commodity Futures Trading Commission (CFTC), New Jersey Attorney General Jennifer Davenport is asking the Supreme Court to take up the issue.
The state’s appeal hinges on whether the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act pre-empts states from regulating sports contracts occurring within their jurisdictions if offered on markets registered with the CFTC.
“Companies like Kalshi claim to offer legal sports betting in all 50 states, but they refuse to follow the gambling laws of any state,” Davenport said in a press release. “These companies have no right to offer their sports bets without following state law, which is why dozens of states across the ideological spectrum have opposed them.
“States have long adopted careful laws to regulate gambling, including to prevent compulsive gambling, gambling by minors, and insider trading on sports games. We’re calling on the Supreme Court to resolve this issue and recognize that Congress did not silently make the sports betting industry immune from state law.”
Differing Opinions At Appellate Level
Numerous states, including Nevada and New York, have sued prediction markets. They argue the platforms are nothing more than illegal gambling operations. They claim companies like Kalshi and Polymarket are circumventing state gaming laws.
The Supreme Court is likely to review the issue after differing opinions from appellate courts. The Third Circuit Court of Appeals ruled 2-1 in April that New Jersey couldn’t regulate companies like Kalshi. The Ninth Circuit ruled 3-0 for Nevada against Kalshi.
Davenport is petitioning for the country’s highest court to determine whether states have the power to regulate sports event contracts as they do traditional sports wagering.
The petition points to a 2018 ruling by the High Court. It affirmed states’ ability to regulate sports betting by repealing the Professional and Amateur Sports Protection Act of 1992. That law banned most traditional sports betting outside of Nevada.
“Different states have made different choices on that score,” the petition said. “But Kalshi insists on a different approach – one where federalism has no place, and where the sports gambling laws must be the same in New Jersey as in Utah, so long as the company self-certifies its sports bets with the CFTC.
“As the Ninth Circuit has since observed, neither law nor logic supports the Third Circuit’s and Kalshi’s unprecedented rule. This Court should grant certiorari.”
Kalshi Responds
Prediction market firms claim their offerings are more akin to traditional financial markets than sports betting. The industry has also argued that it’s solely regulated by the CFTC, not by state gaming agencies.
The CFTC has affirmed that stance through a series of lawsuits against New York and other states.
A Kalshi representative said the company disagrees with New Jersey’s effort to bring the issue before the Supreme Court.
“We disagree with New Jersey’s filing,” company spokeswoman Dani Lever said. “Kalshi is an open, nationwide financial exchange. It cannot be regulated by 50 different regulators. Both the Third Circuit and the District of New Jersey sided with Kalshi because the CFTC’s exclusive jurisdiction pre-empts state law.
“While New Jersey points to a recent decision in the Ninth Circuit, that decision agreed with that key principle. Where it differed, it did so based on a regulation that’s in the process of being rewritten. We remain confident in the lower courts’ rulings, and nothing in New Jersey’s filing today changes our view.”
The appeal comes days after an industry insider predicted the Court would eventually take up the case.
The legal fight against prediction markets also saw the city of Baltimore sue Kalshi and Polymarket in August. City officials argued the companies violate state gaming laws and the city’s Consumer Protection Ordinance.
In California, DraftKings faces a class-action lawsuit over its prediction market platform, which the plaintiffs claim is illegal gambling.
Despite the controversy surrounding the platforms, some professional sport franchises have struck deals with prediction markets in recent months.
