Betting on an athletic event against a sports book is gambling and, absent general Federal regulation, can be regulated (or banned) on a State-by-State basis.  Today, States have the direct regulatory role for gambling.

Prediction markets operate differently.  Here, your prediction (of whether a team will win or an athlete will achieve a certain individual goal) is paired against another party that believes that your prediction will not be accurate.  In form, this transaction seems to constitute a private contract, a so-called swap or “derivative” agreement between two parties who disagree and contract with each other.  Such derivatives, being traditional financial market transactions, are regulated by a Federal agency, the Commodities Futures Trading Commission (CFTC).  But traditionally and until very recently, such agreements have not been applied to predicting sporting results, which historically were “processed” in clear gambling situations: bettor against the “house.”

Some States have taken in effect the following position: “Give me a break, who do you think you’re kidding, this is the same thing as gambling, just with a twist, and our State can regulate this arrangement.”  Operators of prediction markets have claimed that all they are doing is arranging a private swap between two parties, not gambling at all.

When the CTFC claims jurisdiction over a type of transaction and State regulators object and purport to regulate the transaction, this conflict goes to a court.  The court decides, and thereafter the losing party is free to seek appeal to the system of Federal “Circuit” appeals courts throughout the United States.

While some of these appeals are still pending, two Circuit courts have in fact decided the issue, however inconsistently.  The Ninth Circuit has decided that Kalshi (in the prediction market space) is involved with gambling and thus the State of Nevada can regulate it. The Third Circuit decided otherwise, to wit that Kalshi was facilitating a swap subject to CTFC regulation and that New Jersey could not regulate the transaction.  When Circuit Courts clearly disagree, it is the Supreme Court that breaks the deadlock.

Will the Supreme Court take this case now, or wait for other Circuits to decide?  Will they decline jurisdiction at this stage until litigation advances to a trial which will explore the exact operation of the prediction market, thereby helping sharpen an understanding of exactly what the inside of a prediction transaction looks like (the two Circuit Court appeals cases decided to date have both been decided by resolving a dispute at the injunction level so there is no lower court record revealing the detailed mechanics of a prediction swap)?

Some legal commentators are betting the Supreme Court will move currently to take jurisdiction and decide the matter. In fact, I bet you ten bucks that the Supremes will in fact take the case on appeal forthwith.  Anyone want to disagree?  Let’s see your ten dollars.  (Does this feel like something someone should regulate?)