New Jersey has asked the Supreme Court to intervene in a contentious legal battle, seeking to clarify whether states or federal regulators should oversee prediction markets and sports-related event contracts. The move follows conflicting rulings from the 3rd and 9th U.S. Circuit Courts of Appeals, creating a “circuit split” that paves the way for a definitive Supreme Court decision on the regulatory future of this burgeoning industry.
New Jersey is escalating its battle over the regulation of prediction markets, formally requesting the Supreme Court to weigh in on a crucial dispute. This move could ultimately determine whether state or federal authorities hold the reins over these increasingly popular platforms, especially those involving sports-related event contracts.
"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," stated Jennifer Davenport, New Jersey's attorney general, underscoring the state's position that these activities fall under their jurisdiction.
The state's petition specifically targets an April ruling by the 3rd U.S. Circuit Court of Appeals. That decision classified all event contracts as a type of derivative, placing them under the exclusive federal oversight of the Commodity Futures Trading Commission (CFTC). New Jersey argues this interpretation effectively sidelines state sports-gambling laws if a company offers its bets on a CFTC-registered market.
Kalshi, a prominent prediction market platform, has voiced strong opposition to New Jersey's filing. "We disagree with New Jersey's filing. Kalshi is an open, nationwide financial exchange. It cannot be regulated by 50 different regulators," a spokeswoman for Kalshi, Dani Lever, told CNBC. Lever reiterated the platform's confidence in lower court rulings that affirmed the CFTC's exclusive jurisdiction preempts state law.
This development marks the latest chapter in an ongoing turf war between the CFTC and numerous states. While the CFTC categorizes sports-related event contracts as "swaps" and thus financial instruments, 44 state attorneys general contend they are fundamentally a form of sports betting, falling squarely within state regulatory powers.
New Jersey's Supreme Court plea gains significant momentum following a recent and contradictory ruling from the 9th U.S. Circuit Court of Appeals. Last Friday, the 9th Circuit determined that sports-related event contracts are not swaps regulated by the CFTC, rejecting an appeal from Kalshi and Crypto.com against the Nevada Gaming Control Board. This directly clashes with the 3rd Circuit's earlier decision, creating a "circuit split" — a key condition that often prompts Supreme Court intervention.
Bank of America analysts, in a Monday note, highlighted this judicial inconsistency as a prime opportunity for the nation's highest court to clarify regulatory authority. However, they also suggested the Supreme Court might defer hearing the case until next year, citing other pending federal circuit cases.
The New Jersey petition explicitly contends that this split between the circuits "justifies certiorari," the process by which a higher court requests review of a lower court's decision. It minces no words, asserting, "The Third Circuit's profoundly important decision is also profoundly wrong."
The CFTC did not provide a comment on the matter.
Interestingly, shares of major gambling operators, including DraftKings and Flutter Entertainment (parent company of FanDuel), saw a surge of over 5% following New Jersey's petition, signaling investor reaction to the potential for a clearer regulatory landscape.
Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.
