First challenge to prediction markets reaches Supreme Court
The US Supreme Court is seen on June 25.
(CNN) — New Jersey on Wednesday asked the Supreme Court to shut down prediction markets in the state, teeing up a potential landmark case where the justices could decide if the highly popular but controversial industry can survive in its current form.
This is the first time the nationwide legal battle over the legality of prediction sites has reached the Supreme Court, and it comes after a string of recent rulings against the companies, including from a federal appeals court.
The high court will likely consider later this fall whether to hear the case. If it does so, then the court would likely hand down a decision by the start of next summer.
Prediction sites like Kalshi and Polymarket let people bet on real-world events like sports, elections, entertainment, the weather and more. They’re structured as financial derivatives markets – not gambling – and are regulated federally by the Commodity Futures Trading Commission.
However, a bipartisan coalition of 44 states have argued that these platforms are, in fact, gambling. They believe prediction companies are running unlicensed sportsbooks, unlawfully skirting state gaming regulations that impose consumer protections and bring in billions in state tax revenue.
That’s why New Jersey’s attorney general tried to shut down Kalshi’s sports bets in the state last year. Kalshi sued, and a federal district judge blocked New Jersey from taking regulatory action against Kalshi. The Philadelphia-based 3rd US Circuit Court of Appeals upheld that ruling in a 2-1 decision in April.
“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,” New Jersey Attorney General Jennifer Davenport, a Democrat, said in a statement on Wednesday.
After New Jersey’s filing, Kalshi expressed confidence that it would ultimately prevail.
“Kalshi is an open, nationwide financial exchange,” Kalshi spokeswoman Dani Lever said in a statement. “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 preempts state law.”
The New Jersey appeal comes less than one week after another state, Nevada, secured a significant victory in a related case on the other side of the country. The 9th US Circuit Court of Appeals ruled 3-0 on Friday that states can regulate prediction markets as sports-betting, creating a circuit split.
The Third Circuit previously found that prediction sites are legally distinct from traditional sportsbooks because they offer “event contracts” for trading, and, thus, must be regulated federally. The Ninth Circuit rejected that view, saying, “Kalshi’s sports event contracts have the hallmarks of sports betting.”
Kalshi is the most popular prediction site in the country. But so far, regulators in three states have secured court orders shutting down Kalshi and, at least, its sports bets: Nevada, Michigan and Washington state.
(CNN has a partnership with Kalshi and uses its data to cover major events, but CNN editorial employees are prohibited from trading on prediction markets.)
A booming industry
Kalshi and Polymarket now see billions of dollars in weekly volume, and the Trump administration has made clear that it wants these sites to flourish.
CFTC chairman Mike Selig, a Trump appointee, has championed prediction markets and has said his agency has exclusive jurisdiction to regulate them.
The agency didn’t intervene in the New Jersey case, but it did in the Nevada case, arguing that prediction sites can’t be touched by state laws. Under Selig, the CFTC has also sued several other states that tried to ban prediction sites.
The CFTC proposed new federal rules in June that would leave most of the industry intact, including most sports markets. Selig’s proposal rebuffed calls for more aggressive regulation from state officials, dozens of lawmakers, addiction experts, and major sports leagues like the NCAA and NBA.
The Trump factor
Looming over the potential future Supreme Court action in this case is President Donald Trump’s financial and familial ties to the industry.
The president’s social media company, Trump Media & Technology Group, announced last year that it was launching its own prediction market called Truth Predict, though it has scaled back those plans in recent months.
And the president’s eldest son, Donald Trump Jr., is an investor and adviser to Polymarket, and is an adviser to Kalshi. A spokesman for Trump Jr. previously said he doesn’t lobby federal officials on behalf of the companies.
Trump has only personally spoken out a few times about prediction markets.
In April, he lamented that “the whole world, unfortunately, has become somewhat of a casino.” But in May, he said it was “critically important” to stop states from regulating prediction sites, so they could “flourish” under new rules proposed by the CFTC and Selig, who he said was “doing a great job.”
The-CNN-Wire
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