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Why Lawmakers Just Told SCOTUS to Stop Sitting on Prediction Markets

By jili tutorial · September 26, 2026

Why Lawmakers Just Told SCOTUS to Stop Sitting on Prediction Markets

The message from state gaming lawmakers is blunt: the time for watching from the sideline is over. The National Council of Legislators from Gaming States (NCLGS) has formally told the U.S. Supreme Court that the legal fight over prediction markets has burned through the lower courts, and it is time for a final, nationwide answer. At stake is whether event-based trading platforms like Kalshi must answer to state gaming laws—or whether a federal regulator’s permission is enough.

The NCLGS’s Appeal to the Supreme Court

The NCLGS, an organization made up of state lawmakers focused on gaming policy, filed an amicus brief earlier this week supporting New Jersey Attorney General Jennifer Davenport. Davenport has asked the Supreme Court to issue a writ of certiorari in a legal battle between New Jersey and Kalshi, a prediction-market exchange.

The case arrives at the Supreme Court after an earlier ruling from the U.S. Court of Appeals for the Third Circuit. While the specifics of the dispute concern Kalshi’s operation in New Jersey, the NCLGS argues the question is far bigger than one company or one state.

At its core, this is a preemption fight. Can a company that is regulated by the federal Commodity Futures Trading Commission (CFTC) be immune from state gaming enforcement? Or can state regulators treat event-based trading as just another form of illegal gambling when it crosses their borders?

What Are Prediction Markets and Event Contracts?

Before diving into the legal arguments, it helps to understand exactly what is being litigated.

Prediction markets let users buy and sell shares in the outcome of a future event. These events can be political elections, economic indicators, or sporting contests. A user might buy a contract that says “Yes” if a certain team wins the championship and “No” if it loses. If the prediction is correct, the buyer receives a payoff; if not, the contract becomes worthless.

These instruments are called event contracts. They are not traditional bets placed at a casino or through a sportsbook, but functionally they can look very similar to wagers.

Kalshi’s argument

Kalshi is a platform built around these contracts. It has long argued that because it operates under the oversight of the CFTC, it should not also have to comply with 50 different state gaming regimes. In Kalshi’s view, the Commodity Exchange Act preempts state gambling laws. If the federal government has already created a comprehensive regulatory system for event contracts, a state cannot come in behind the federal exchange and declare those products illegal.

The state regulators’ argument

New Jersey gaming regulators and attorneys general disagree. They argue that event contracts on sports outcomes are essentially indistinguishable from sports betting. And because states have long held the power to regulate gambling within their borders, a federally approved trading platform should not get a free pass to offer what is, in practical terms, a wager.

Inside the NCLGS Amicus Brief

The NCLGS brief does not try to settle the full dispute on its own. It does not directly answer whether the CFTC has jurisdiction over sports event contracts. Instead, it makes a more focused argument about state authority.

A targeted argument about state authority

The brief argues that state governments must retain control over gaming-related matters. It specifically urges the Supreme Court not to issue a ruling that would prevent states from intervening in products such as sports event contracts. In other words, even if the Court decides that some event contracts fall under federal jurisdiction, it should preserve a clear lane for state gaming regulators to act.

This is an important distinction. The brief acknowledges that certain contracts traded on federally regulated exchanges may still be subject to the CFTC’s jurisdiction. Not every product in the prediction-market ecosystem is identical. The contentious question is whether sports event contracts belong in that federally protected category.

“Substantial harm and confusion”

The amicus brief warns of the consequences if the Supreme Court rules in a way that blocks state involvement. Without the ability to enforce state gaming laws, the market for sports event contracts could become legally murky overnight. The result, the brief says, could be “substantial harm and confusion” for lawmakers, regulators, and consumers.

This is not just a theoretical concern about legal uncertainty. It is a warning that a ruling in favor of a broad reading of federal preemption would undermine years of state-level sports-betting regulation.

The Tax Revenue Problem

One of the most persuasive arguments in the NCLGS brief is about money.

Casinos and pari-mutuel wagering businesses are heavily regulated and heavily taxed. They contribute significantly to both state and federal revenue. If Kalshi wins, those businesses may decide to restructure their operations to take advantage of the same legal treatment. Why continue to operate under expensive sports-betting licenses if a competitor can simply rebrand its offerings as CFTC-regulated event contracts?

The brief warns that this kind of regulatory arbitrage could lead to a noticeable decline in tax revenue. If sports betting can be repackaged as a financial product and escape state gaming taxation, the public treasuries that have come to rely on gaming revenue would suffer.

What Happens Next at the Supreme Court?

The Supreme Court receives thousands of petitions for certiorari every year and grants very few. But this case has features that may attract the Court’s attention: a direct conflict between federal and state authority, a rapidly growing industry, and significant policy consequences.

If the Court grants certiorari

The Supreme Court would hear arguments on how to balance federal preemption against traditional state police power. A decision on the merits would create a national rule for prediction markets and sports event contracts. Depending on how the Court rules, it could either hand the CFTC broader authority over event-based derivatives or reaffirm the power of states to police what they consider gambling.

If the Court denies certiorari

If the Supreme Court refuses to take the case, the Third Circuit’s decision remains binding within that circuit. That means the legal status of these contracts could continue to differ across the country. States in one region might be able to enforce their gaming laws; states elsewhere might not. The broader debate over prediction markets would remain unresolved, and more litigation would follow in other circuits.

Why This Matters Beyond Kalshi

This case is not just about one platform or one state’s attorney general. Sports event contracts have become an essential part of the prediction-market business model. Many of the most popular products on these exchanges are tied to football, basketball, baseball, and other major sports.

A ruling that treats those products as lawful, federally regulated derivatives could change the face of the American gaming industry. It could push sports betting off licensed sportsbooks and onto financial trading desks. It could blur the line between investing and gambling in a way that has profound implications for consumer protection, market integrity, and state revenue.

Alternatively, a ruling that allows state gaming regulators to apply their own laws to event contracts could stifle an emerging industry and force national platforms to either filter their offerings by state or abandon certain markets altogether.

Either way, the Supreme Court’s decision—or its decision not to decide—will send a powerful signal about the relationship between state regulation and financial markets.

The Bottom Line

The NCLGS has drawn a line in the sand. Its message to the Supreme Court is clear: the current situation is unsustainable. Prediction markets that offer sports event contracts cannot be allowed to operate in a legal gray zone forever. States need clarity, and they need a ruling that preserves their right to act.

As the Court prepares to weigh whether to take up New Jersey Attorney General Jennifer Davenport’s petition, the gaming industry will be watching closely. Casinos, pari-mutuel operators, trading platforms, and state tax collectors all have a stake in the outcome.

The future of sports event contracts in America is now in the Supreme Court’s hands.