US Supreme Court May Decide Whether Prediction Markets Are Gambling

Kalshi and Polymarket at the Center of the Dispute

The legal battle focuses on prediction markets, which allow users to trade contracts based on the outcome of events, including sporting competitions. Platforms such as Kalshi and Polymarket argue that their “event contracts” are financial derivatives and should therefore fall under the exclusive jurisdiction of the federal Commodity Futures Trading Commission (CFTC).

States, however, argue that sports-related contracts offered by these platforms are effectively wagers and should be regulated under state gambling and sports-betting laws.

Federal and State Regulators Clash

The dispute has produced conflicting decisions in federal appeals courts, increasing the possibility that the Supreme Court will ultimately intervene.

The disagreement centers on which regulatory framework applies: federal commodities legislation overseen by the CFTC or state gambling laws governing sports betting.

A September ruling by the 6th U.S. Circuit Court of Appeals held that Ohio and Tennessee could regulate Kalshi's event contracts under their gambling laws, adding to the divide among federal courts.

The 9th Circuit has likewise ruled that Nevada can exercise oversight over Kalshi's sports prediction markets, while an earlier 3rd Circuit decision reached a different conclusion regarding New Jersey.

A Decision With Broad Implications for the Gaming Industry

If the Supreme Court determines that prediction markets constitute gambling, platforms could face different requirements from state to state, including licensing obligations, taxes, restrictions and potential criminal penalties.

The outcome could also affect the relationship between prediction-market operators and the established U.S. sports-betting industry, particularly in states where sports wagering is already regulated.

The dispute involves a broad group of stakeholders, including state regulators, Native American tribes, casinos, financial exchanges, online sportsbooks and the federal government.

Supreme Court Could Set the Regulatory Framework

The Supreme Court has not yet agreed to hear the prediction-market cases. However, the conflicting appellate decisions have intensified pressure for the justices to resolve whether these contracts should be treated as financial products or gambling.

For the rapidly expanding prediction-market sector, a Supreme Court ruling could establish the legal framework under which companies such as Kalshi and Polymarket operate across the United States.