New Jersey filed a petition asking the Supreme Court to resolve whether states or the CFTC regulate prediction markets, following a 3rd Circuit ruling that classified event contracts as swaps.
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New Jersey asks Supreme Court to settle 44-state prediction market fight
New Jersey asked the Supreme Court to review a ruling classifying event contracts as CFTC-regulated "swaps," a petition that could strip 44 states of gambling oversight over prediction markets.
"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," Jennifer Davenport, New Jersey's attorney general, said in a statement.
The petition targets an April ruling from the 3rd U.S. Circuit Court of Appeals that found all event contracts are derivatives regulated at the federal level by the Commodity Futures Trading Commission. The filing follows a unanimous 9th Circuit decision on Aug. 28 that states can regulate prediction markets as gambling, directly contradicting the 3rd Circuit and creating the split that typically prompts Supreme Court review. Bank of America said in a Monday note that legal experts think the court may still wait until next year before hearing the case, as other federal circuits have pending litigation.
The stakes extend beyond jurisdiction. Twenty states are in active litigation against prediction platforms, while 44 state attorneys general signed a letter telling the CFTC it has no authority over sports-related event contracts. The Tax Foundation estimates states lose $2 billion per year in uncollected revenue from prediction market operators. DraftKings and Flutter Entertainment shares each rose more than 5 percent after New Jersey filed its petition.
A circuit split over what constitutes a swap
The 3rd Circuit's April ruling held that "so long as a company offers its sports bets on a CFTC registered market," state sports-gambling laws fall away, according to the petition. The 9th Circuit panel, composed entirely of Trump-appointed judges, reached the opposite conclusion, writing that "the substance of the sports event contracts offered on Kalshi's exchange is sports gambling."
The contradiction gives the Supreme Court a textbook reason to grant certiorari. New Jersey's petition argues the split "justifies certiorari" and calls the 3rd Circuit's decision "profoundly wrong."
The CFTC has sued nine states to defend its exclusive jurisdiction over event contracts, invoking emergency powers for only the seventh time in its history on Aug. 11 to order Kalshi to continue operating nationwide after New York Attorney General Letitia James filed a lawsuit seeking $36 billion in damages.
The money behind the fight
Prediction markets have grown from a niche derivatives product into a mainstream financial sector. Polymarket crossed $1 billion in annualized revenue by late June 2026, six weeks after lifting its U.S. waitlist, and is seeking to raise $1 billion at a valuation above $20 billion. Kalshi was valued at $22 billion in May. Major League Baseball signed a multiyear partnership with Polymarket reported at $150 million to $300 million, and the platform expanded its Sportradar data deal to cover roughly 300,000 matches across more than 20 leagues.
The gambling industry has been a driving force behind state actions, viewing prediction markets as competitors that operate without gaming licenses or state tax obligations. Traditional sportsbooks and casinos have pressed state officials to treat the platforms as unauthorized gambling operations rather than novel financial products.
If the Supreme Court sides with the states, prediction platforms would need gaming licenses in every state where they operate — a compliance burden that would be prohibitive for blockchain-based platforms designed to operate under a single set of federal rules. They would also face retroactive state tax claims, with the Tax Foundation's $2 billion annual estimate providing the financial incentive for aggressive enforcement.
The CFTC has proposed amendments to Regulation 40.11 that would create a three-step test for event contracts, with sports contracts tied to player injuries and markets linked to wars, terrorism, or assassinations facing stricter examination. The final rule, currently in the comment period, will determine which categories of prediction markets survive federal scrutiny.
This article is for informational purposes only and does not constitute investment advice.
