Potential defeat of Kalshi in Maryland may open path for Supreme Court examination
The United States Supreme Court is set to review a series of conflicting federal court interpretations regarding the preemption of state gambling laws by federal commodities law in the context of sports wagering and prediction markets.
This review arises from divergent rulings by federal judges in Maryland, Nevada, and New Jersey over whether federal law, including the Commodity Exchange Act (CEA) and Dodd-Frank Act, preempts state authority to regulate sports betting, particularly concerning so-called "sports-event contracts" traded on CFTC-approved markets.
In May, the U.S. Court of Appeals for the Fourth Circuit dismissed an appeal by prediction market operator Kalshi, following a Maryland federal court ruling against federal preemption. The court held that Congress did not clearly intend for federal commodities laws to override state gambling regulation.
However, federal judges in Nevada and New Jersey have taken positions more favourable to federal preemption in related cases. This circuit split—where courts differ on the balance between federal commodities regulations and state gambling laws—creates legal uncertainty, likely prompting the Supreme Court to resolve the issue.
The Supreme Court has previously weighed in on sports betting regulation at the federal-state interface, notably in Murphy v. NCAA (2018), which struck down the federal ban (PASPA) on states authorizing sports wagering under a Tenth Amendment anti-commandeering rationale. However, the current cases focus more on the scope of federal preemption under federal commodities statutes rather than on the constitutional anti-commandeering issues at the heart of Murphy.
The forthcoming Supreme Court review will likely centre on whether and to what extent federal commodities law displaces state gambling regulation in the new context of sports-event contracts and sports wagering markets, clarifying the interplay between federal and state laws after these conflicting lower federal court rulings.
The CFTC, an independent federal agency, enjoys exclusive jurisdiction to regulate commodities and futures on designated exchanges. This year, the agency cleared Kalshi to offer prediction contracts under new leadership. However, the CFTC's outlook on Kalshi changed with President Donald Trump taking office and Caroline Pham, a Republican, becoming the agency's interim chair.
The debate over Kalshi's sports-event contracts centres around the Supremacy Clause of the U.S. Constitution and the CEA's preemption of state regulation. A group of tribes and gaming associations filed an amicus brief urging the court to side with Maryland, expressing concern that an interpretation of the CEA as preempting state gambling laws could affect the Indian Gaming Regulatory Act.
Prediction markets such as Kalshi enable users to place "yes" or "no" trades on subjects such as whether an MLB team will become the "Pro Baseball Champion." Kalshi scored victories before federal judges in Nevada and New Jersey that prevented those states' gaming commissions from requiring Kalshi to obtain licenses.
However, Maryland gaming enforcers view sports-event contracts as a form of sports wagering, which is a regulated activity in Maryland. Abelson, the judge in the case, is not convinced that the CEA strips states of the ability to regulate companies offering wagering opportunities.
A separate development sees Polymarket's $112M acquisition potentially setting up a U.S. return for the company in the near future, according to a related story. However, the legal challenges facing Kalshi could impact this prospect.
People may be interested in analyzing the impact of technology on sports betting, as the Supreme Court is set to review a series of conflicting court rulings about federal preemption of state gambling laws in the context of sports wagering and prediction markets. This review comes after divergent decisions by federal judges in Maryland, Nevada, and New Jersey regarding the CEA and Dodd-Frank Act's jurisdiction over state authorities regulating sports betting, particularly related to "sports-event contracts" traded on CFTC-approved markets.
Furthermore, the legal uncertainty created by these conflicting rulings could influence the future of companies like Kalshi, which enable sports-event betting, as the outcome of the Supreme Court's review could affect the interpretation of federal commodities statutes in relation to state gambling regulations.
