In January 2025, Kalshi, a prediction market company that lets people bet on the outcome of real-world events, listed a four-word binary event contract on the outcome of the Super Bowl that has set the world ablaze: “Will <team> win <title>?”
The contract triggered what is likely to be one of the most consequential legal fights in the history of gambling—even more so than the Supreme Court’s 2018 repeal of PASPA (the Professional and Amateur Sports Protection Act) that allowed states to legalize sports betting. On one side are prediction markets like Kalshi, along with the Commodity Futures Trading Commission (CFTC). On the other side are no less than 15 states, multiple Indian tribes, and legacy gambling operators.
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As with PASPA before it, the Supreme Court is the likely destination for this dispute, with oversight of sports betting—whether by the federal government, state and tribal governments, or all the above—hanging in the balance.
The current legal fights over sports contracts didn’t come out of nowhere. They grew out of an earlier legal battle over election contracts that Kalshi won.
Prediction markets function like stock markets for real-world events, but instead of buying shares in a company, users buy binary contracts (costing somewhere between $.01 and $.99) that pay out $1 if the event happens and $0 if it doesn’t. Kalshi is regulated by the CFTC as a financial exchange, not by state gambling regulators, as are traditional sports books.
Kalshi was founded in 2018 and launched in 2021, but the world was largely unaware of it until September 2023, when it sought to offer a binary event contract asking: “Will [chamber of Congress] be controlled by [party] for [term]?”
This wasn’t the first time the CFTC was asked to approve an election market, but unlike election markets offered on PredictIt and the Iowa Electronics Market (nonprofit academic/research platforms that have operated under CFTC no-action relief), Kalshi is a for-profit company. The CFTC, then led by Chairman Rostin Behnam, disapproved the contract in September 2023 under the Dodd-Frank special rule for event contracts. And then it was off to the courts.
On September 6, 2024, U.S. District Judge Jia M. Cobb ruled in Kalshi’s favor, vacating the ban and rejecting the CFTC’s broader interpretation of gaming to include elections. The CFTC initially appealed the ruling but dropped its appeal in May 2025.
The victory opened the door for election markets of all stripes, and Kalshi quickly accelerated its offerings, adding more election contracts. It moved into sports in January 2025 and added parlay-style “combos” in September 2025. Kalshi is now the largest prediction market platform in the U.S.
No state, tribe, or gambling operator mounted significant legal challenges until Kalshi began offering sports markets, which states and tribes argue constitute illegal gambling and violate state and tribal laws. Kalshi and the CFTC maintain that they are swaps subject to exclusive federal oversight.
An eventual date at the Supreme Court is almost certain. Less certain: Which case reaches the Court? When? And, most importantly, how will the Court rule?
The answers to those questions are in the hands of nine justices and how they decide to read the statute’s language, structure, and context.
At the heart of the case is Commodity Exchange Act § 5c(c)(5)(C), the special rule for event contracts added by Dodd–Frank. Specifically, the following two sections:
40.11(a): “A registered entity shall not list for trading or accept for clearing . . . any of the following: (1) An agreement, contract, transaction, or swap . . . that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law; or (2) [similar activities that the Commission later determines by rule are contrary to the public interest].”
40.11(c): “The Commission may determine . . . that [a] . . . contract . . . which may involve . . . an activity enumerated in § 40.11(a)(1) . . . be subject to a 90-day review.”
During that 90-day review, the Commission can require the exchange to suspend listing/trading, and it must then issue a final approve-or-disapprove order.
States and tribes believe that 40.11(a) represents a categorical ban, while 40.11(c) is reserved for borderline cases outlined in 40.11(a)(2), which includes similar activities that the Commission later determines by rule “are contrary to the public interest.”
Kalshi argues that the Commodity Exchange Act (CEA) is a two-prong test, and that 40.11(a) and 40.11(c) cannot be read separately. Kalshi’s argument is that 40.11(c) is a procedural mechanism that provides the CFTC final say on the permissibility of a contract, even if it involves terrorism, war, or gaming.
The grammar and structure of the law (as with many laws) leave a lot of wiggle room. Phrases like “may determine” and “may involve” are discretionary. And if 40.11(a) is a categorical prohibition, why include the elaborate 90-day review process in § 40.11(c)?
In short, the two sides disagree on whether this rule gives the CFTC the final word on the permissibility of all contracts or whether there is a concrete ban on the markets listed in 40.11(a). And that is not the only interpretive fork in the road.
Dodd–Frank doesn’t define “gaming,” and the CFTC has never issued a final binding definition, though it proposed one in June 2024 under Chairman Rostin Behnam that would have broadly covered “the staking or risking by any person of something of value upon . . . the outcome of a contest of others,” “the outcome of a game involving skill or chance,” the performance of competitors, or any occurrence “in connection with” contests or games.
The proposed definition was withdrawn in February 2026 by current Chairman Michael Selig.
A new CFTC proposal, published June 10, 2026, seeks to create a structured framework for prediction markets, including a proposed definition of gaming (and how it differs from gambling). The proposal also places guardrails around some sports contracts, though the language remains ambiguous and would still give the CFTC the final say.
Proposed 40.11(b) sets out the following definition in the CFTC’s proposed rules:
“Gaming means any activity that: (i) one or more participants typically engage in for purposes of recreation or to entertain others, (ii) is governed by rules; and (iii) includes measurable occurrences or outcomes that depend on the participants’ luck, skill, or athletic ability during the activity. . . . The Commission also notes that if an activity is not gaming as defined above, the mere fact that gambling occurs in relation to that activity does not make it gaming.”
In the earlier court case, Kalshi’s lawyers acknowledged that contracts on events like the Super Bowl would likely qualify as “gaming” under the CFTC’s rules. However, the CFTC has not invoked Rule 40.11 to prohibit or suspend any of Kalshi’s sports contracts, as both Kalshi and the CFTC argue that even if sports contracts are gaming, they still qualify (under the two-prong test) as swaps. Essentially, even if it is “gaming,” the CFTC can still determine that the contract is not against the public interest.
States and tribes have pointed to the long-standing presumption against preemption in areas that states have traditionally overseen, such as gambling. This canon presumes that Congress did not intend to displace state law in fields like health, safety, and morals unless it spoke clearly and manifestly.
In April 2026, the Third Circuit in KalshiEX LLC v. Flaherty held that sports contracts traded on CFTC-registered designated contract markets (DCMs) are swaps subject to the CEA’s exclusive federal jurisdiction. The majority found both field preemption (Congress occupied the field of swaps on DCMs) and conflict preemption (state enforcement would obstruct uniform national derivatives regulation).
Other circuits are still deciding similar cases.
The Ninth Circuit held consolidated oral arguments on April 16 in cases brought by Kalshi, Robinhood, and Crypto.com against Nevada. District courts ruled against the platforms. The Fourth Circuit heard oral arguments on May 7 in Kalshi’s appeal from a Maryland district court’s denial of a preliminary injunction. The panel expressed skepticism toward Kalshi’s preemption arguments, but the decision has not been issued.
The Major Questions Doctrine presents another obstacle.
Preempting state regulation of a multi-hundred-billion-dollar sports-betting industry is the definition of consequential. Under the doctrine (most prominently articulated inWest Virginia v. EPA), courts presume that Congress does not “hide elephants in mouseholes,” as judges presiding over prediction market cases have said.
Put simply, Dodd–Frank’s event-contract rule that bars gaming would be an interesting way to designate the CFTC as a national sports betting regulator.
PASPA (1992) and Murphy v. NCAA (2018) reflect Congress’s long-standing decision to leave sports gambling to states and tribal governments. It follows that the Supreme Court would require a clear statement before reading the CEA as displacing that long-standing authority, especially given its observation in Murphy v. NCAA that “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.” That seems moot if Dodd–Frank gave the CFTC that power in 2008.
So far, no petition has reached the Supreme Court, but several are progressing there, and circuit splits would make a review highly likely, especially given the involvement of dozens of states and tribes as amici and the enormous economic stakes involved given sports betting’s tax contributions.
To offer up a perfect use case for prediction markets, as of this writing, traders have assigned a 31 percent probability of Supreme Court acceptance by the end of 2026.
Whatever the path, the Court’s approach will have to weigh the broad statutory language on swaps, the exclusive jurisdiction against states’ traditional power to oversee gambling, the very definition of “gaming,” and the Major Questions Doctrine.
The most likely ruling: a decision that largely preserves state and tribal roles while affirming federal oversight of true swaps (definition to be determined) on registered platforms. The result is unlikely to be a total victory for prediction markets or for the states.