After Kalshi appeal, prediction markets fight could head to US Supreme Court
TL;DR
The legal battle over regulating prediction markets may escalate to the US Supreme Court after a recent appeal by Kalshi against Nevada's ban on its event contracts. A federal court previously blocked Arizona from enforcing its gambling laws on Kalshi's contracts.
Key points
- Kalshi is appealing a Nevada ban on its event contracts
- Legal experts suggest the case may reach the US Supreme Court
- A federal court blocked Arizona from enforcing gambling laws on Kalshi
Mentioned in this story
Some legal experts speculated that the state vs. federal jurisdiction battle over regulating prediction markets companies could soon be headed to the United States Supreme Court.
On Thursday, the US Court of Appeals for the Ninth Circuit heard oral arguments from lawyers representing prediction markets platform Kalshi and Nevada authorities over the state's ban on the prediction markets' event contracts. The appeal was over a lower court decision preventing Kalshi from offering certain event-based contracts in Nevada, based on claims that the company needed a gaming license.
Thursday oral arguments by Kalshi and the State of Nevada. Source: US Court of Appeals, Ninth Circuit
The appellate judge overseeing Thursday’s oral arguments and the lawyer for Kalshi acknowledged that there had been several state-level enforcement actions against the company and other prediction market platforms, including criminal charges filed in Arizona. However, last week a federal court blocked Arizona authorities from enforcing the state’s gambling laws on Kalshi’s event contracts.
“I think the body of case law does demonstrate that what we really need to avoid here is having a state and a federal court considering exactly the same issue at exactly the same time and potentially reaching different outcomes,” said Colleen Sinzdak, representing Kalshi.
Related: CFTC probes oil futures trades tied to Trump's moves in Iran: Report
Central to Kalshi’s argument was that the platform’s event contracts were “swaps” falling under the purview of the Commodity Futures Trading Commission (CFTC) rather than state gaming authorities. CFTC Chair Michael Selig has backed this position in the case of Crypto.com’s prediction markets against Nevada authorities.
The appellate court did not immediately announce a decision following oral arguments. Any ruling could affect how state courts treat prediction market platforms like Kalshi and Polymarket as policymakers come to terms with the growing market, expected to reach $1 trillion by 2030.
Coinbase’s top lawyer weighs in on prediction market arguments
Coinbase chief legal officer Paul Grewal, whose company was not a party to the Kalshi proceedings but has a stake in the prediction markets fight, speculated that the case could go the US Supreme Court.
“The questions at oral argument are an unreliable signal in predicting the leanings of a court,” said Coinbase chief legal officer Paul Grewal in a Thursday X post following the oral arguments. “Either way, I stand by my longstanding prediction— the Supreme Court will resolve whether sports [contracts] on [Designated Contract Markets] are swaps subject to the exclusive jurisdiction of the CFTC.”
The US Supreme Court gave states the authority to regulate sports gambling in its 2018 decision in Murphy v. National Collegiate Athletic Association.
Magazine: Should users be allowed to bet on war and death in prediction markets?
Q&A
What is the current legal status of Kalshi's prediction markets in Nevada?
Kalshi is appealing a lower court decision that prevents it from offering certain event-based contracts in Nevada due to a state ban.
How could the Kalshi appeal impact prediction markets regulation in the US?
If the appeal progresses to the US Supreme Court, it could set a significant precedent for how prediction markets are regulated at both state and federal levels.
What recent actions have been taken against Kalshi by state authorities?
Kalshi has faced several state-level enforcement actions, including criminal charges in Arizona, but a federal court recently blocked Arizona from enforcing its gambling laws on Kalshi.
