Supreme Court Watch
New Jersey has formally asked the U.S. Supreme Court to step into its legal battle with Kalshi, bringing the dispute over prediction markets closer to a potential showdown before the nation’s highest court.
The case centers on whether sports-related prediction contracts should be classified as gambling and regulated by individual states, or treated as swaps that come under the authority of the federal Commodity Futures Trading Commission (CFTC).
The Supreme Court is under no obligation to hear the case simply because New Jersey has filed its petition. However, recent court decisions have created circumstances that could make the issue more likely to reach the justices.
Why the Dispute Matters
Legal experts who have followed the growing number of prediction-market cases have increasingly expected the Supreme Court to consider one of them, potentially within the next year.
The consequences could be significant for companies operating in the sector.
A decision classifying sports prediction contracts as gambling could require prediction-market operators to obtain licenses and regulatory approval from individual states. They could also become subject to state gambling taxes and other local requirements.
If the Supreme Court instead determines that the contracts are federally regulated swaps, prediction markets could gain stronger protection from state-level gambling restrictions. Such a ruling could also create major challenges for traditional sports-betting businesses.
A Growing Court Split
New Jersey is asking the Supreme Court to decide whether the Dodd-Frank Wall Street Reform and Consumer Protection Act prevents states from applying their gambling laws to prediction contracts traded through federally regulated designated contract markets.
The legal dispute has become more significant following conflicting decisions in the federal appeals courts.
The Third Circuit ruled in Kalshi’s favor in April, while the Ninth Circuit issued a decision last month that went in a different direction. Attorneys following the cases told CoinDesk that the emerging circuit split could give the Supreme Court a stronger reason to consider the issue.
New Jersey could have petitioned the Supreme Court after the Third Circuit decision regardless, but Carl Kennedy, a partner at Katten and co-chair of its financial markets and regulation practice, said the Ninth Circuit ruling adds momentum to the case.
The justices could wait for additional appeals courts, including the Sixth and Fourth circuits, to weigh in. But they are not required to do so.
Katherine Kirkpatrick Bos, head of legal at Chainlink Labs, said the combination of conflicting appellate decisions and an issue with nationwide consequences could make Supreme Court review more likely.
Todd Phillips, a director at Klaros Group, said further circuit court rulings could nevertheless help the Supreme Court understand the broader legal landscape.
If the Sixth, Fourth and Ninth circuits ultimately side with the states while the Third Circuit remains the exception, that could strengthen the states’ argument. If those courts reach different conclusions, the resulting split could provide another reason for the Supreme Court to intervene.
The CFTC Could Influence the Timing
The Supreme Court may also decide to wait for the CFTC to complete its work on prediction-market regulations.
Daniel Wallach, an attorney specializing in gaming and sports-betting law, pointed to the agency’s proposed rules governing event contracts. Those rules have not yet been finalized.
Any final CFTC rule could itself face a challenge under the Administrative Procedure Act, Wallach said. If that happens, the Supreme Court might view the larger dispute as premature and decide that the legal questions are not yet ready for review.
New Jersey is also not necessarily restricted to the arguments it made during its initial case against Kalshi, Kennedy said.
The state could incorporate arguments raised in other prediction-market lawsuits, particularly as more cases move through the courts. Attorneys representing the parties are expected to follow those proceedings closely.
If multiple cases eventually become consolidated, those additional legal arguments could become even more relevant, Phillips said.
Wallach expects both states attempting to regulate prediction markets and companies operating the platforms to seek an opportunity to make their cases directly to the Supreme Court.
He also noted that the Supreme Court historically overturns lower-court decisions in roughly 70% of cases, although that statistic alone says little about how the justices would resolve this particular dispute.
What Comes Next
The Supreme Court has approximately 90 days to determine whether it will grant New Jersey’s petition, Kennedy said.
Once the filing is docketed, Kalshi will have 30 days to submit its response, according to Wallach.
The initial stage would focus solely on whether the Supreme Court should accept the case. If the justices grant certiorari, the proceedings would then move toward arguments over the underlying legal questions.
Clarity Act Watch
The Digital Asset Market Clarity Act also faces a difficult timeline.
The U.S. House of Representatives is scheduled to be out of session during the final two weeks of September. As a result, even Senate passage this month would leave little opportunity for the legislation to become law before the midterm elections.
The bill did receive some positive news Friday, when the National Sheriffs’ Association told Senate leadership that it would change its position from opposing the legislation to remaining “neutral.”
Several issues remain unresolved.
There has been little public information about negotiations over the bill’s ethics provisions, while the debate surrounding stablecoin yield remains unsettled.
Crypto executives consulted last week were evenly divided over whether the legislation can ultimately pass.
Attention is expected to increase again as the Senate prepares to return and considers its first procedural vote on the bill.
Looking Ahead
The prediction-market debate is entering a potentially decisive phase as New Jersey’s petition puts the issue directly before the Supreme Court.
Whether the justices take the case may depend on how they weigh the growing circuit split, future appeals court decisions and the CFTC’s evolving regulatory framework.
