Prediction Markets Near Supreme Court Showdown as Crypto Debate Intensifies

SCOTUS Watch

New Jersey has formally asked the U.S. Supreme Court to review its legal fight with Kalshi, bringing the long-running dispute over prediction markets one step closer to the nation’s highest court.

The central question is whether sports-related prediction contracts should be treated as gambling products subject to state regulation, or as swaps that fall under the federal oversight of the Commodity Futures Trading Commission (CFTC).

Filing a petition for a writ of certiorari does not guarantee that the Supreme Court will accept the case. Still, the conditions for a potential review are increasingly in place.

Why It Matters

Lawyers who have followed prediction-market litigation closely have widely expected the Supreme Court to eventually consider one of these disputes, potentially within the next year.

The outcome could have major consequences for the industry.

If the justices determine that sports prediction contracts constitute gambling, companies offering them could be required to obtain licenses in individual states, comply with state-level approvals and pay applicable taxes.

A ruling that the contracts qualify as federally regulated swaps, however, could significantly restrict the ability of states to regulate them and have broader consequences for traditional sports-betting operators.

Breaking Down the Case

New Jersey is asking the Supreme Court to determine whether the Dodd-Frank Wall Street Reform and Consumer Protection Act prevents states from enforcing their gambling laws against prediction-market contracts when those products are traded through federally regulated designated contract markets.

The case now has an additional factor that could increase the Supreme Court’s interest: a split among federal appeals courts.

The Third Circuit previously ruled in favor of Kalshi, while a Ninth Circuit decision issued last month provided a conflicting position. Attorneys following the litigation told CoinDesk that such a circuit split is exactly the type of development that can make an issue more attractive for Supreme Court review.

New Jersey already had the right to challenge the Third Circuit’s April ruling before the Supreme Court. But Carl Kennedy, a partner at Katten and co-chair of the firm’s financial markets and regulation group, said the conflicting appellate ruling gives the petition greater significance.

The justices could still wait for additional appellate courts to issue decisions, but they are no longer required to do so before considering the dispute.

Katherine Kirkpatrick Bos, head of legal at Chainlink Labs, said the Supreme Court is more likely to consider cases involving conflicting circuit decisions and questions with nationwide importance. In this instance, she noted, the litigation could materially influence the business model of an entire industry.

Additional decisions from the Sixth and Fourth circuits could nevertheless give the Supreme Court more guidance, according to Todd Phillips, a director at Klaros Group.

If the Ninth, Sixth and Fourth circuits ultimately side with the states while the Third Circuit remains the outlier, that could indicate that broader judicial review is trending against prediction markets. Conversely, if the other circuits reach different conclusions, that disagreement could provide the Supreme Court with even more reason to intervene.

Daniel Wallach, a gaming and sports-betting attorney, said another possibility is that the Supreme Court could wait until the CFTC completes its ongoing rulemaking concerning prediction markets.

The agency has proposed changes involving event contracts, but the rules have not yet been finalized. Wallach expects any final regulation to face a challenge under the Administrative Procedure Act. If that happens, the Supreme Court could conclude that the broader legal dispute is not yet ready for review.

New Jersey also is not necessarily restricted to the arguments it previously raised in its district court case against Kalshi, Kennedy said.

The state could introduce additional legal theories based on arguments developed in other prediction-market lawsuits. Kennedy said attorneys representing the state would naturally be expected to track those cases and incorporate relevant arguments as the litigation develops.

That could become particularly important if multiple appellate cases eventually become consolidated, Phillips said.

Wallach added that states seeking to regulate prediction markets and companies operating those platforms are likely to want an opportunity to present their respective positions directly to the Supreme Court.

Historical statistics could also give New Jersey some confidence. Wallach noted that the Supreme Court reverses lower-court decisions in roughly 70% of cases, although that figure does not indicate how the justices would rule on this particular dispute.

What Happens Next?

The Supreme Court generally has about 90 days to decide whether to grant New Jersey’s petition, Kennedy said.

Once the petition is formally docketed, Kalshi will have 30 days to file its response, according to Wallach.

The first stage of Supreme Court proceedings would focus narrowly on whether the justices should hear the case at all. If certiorari is granted, the parties would then move on to briefing and arguments concerning the underlying legal dispute.

Clarity Watch

The U.S. House of Representatives is scheduled to be out of session during the final two weeks of September. That timing makes it highly unlikely that the Digital Asset Market Clarity Act could become law before the midterm elections, even if the Senate manages to pass the legislation this month.

Another potential obstacle was removed Friday when the National Sheriffs’ Association told Senate leaders that it would move from opposing the legislation to taking a “neutral” position.

Other issues remain unresolved, however.

Negotiations surrounding the bill’s ethics provisions have not been publicly detailed, while questions involving stablecoin yield continue to generate debate among industry participants and policymakers.

Executives consulted last week were evenly divided over whether the legislation can ultimately pass.

That uncertainty could become more significant as the Senate prepares to return and approach its first procedural vote on the measure.

This Week

For now, the political and regulatory landscape remains relatively quiet, but several major developments could be approaching.

The prediction-market fight is moving closer to a potential Supreme Court review, while lawmakers continue working through the remaining obstacles surrounding crypto legislation.

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