U.S. regulators ask Supreme Court to review prediction markets dispute over sports betting contracts

A split between federal appeals courts could decide whether state gambling laws still apply when sports bets are packaged as event contracts on a CFTC-registered market. The filing matters because it goes to the basic question high-risk operators care about: who actually controls the product when federal commodities law and state gaming law collide.

1. The International Association of Gaming Regulators (IAGR) and the North American Gaming Regulators Association (NAGRA) filed a joint amicus curiae brief supporting Supreme Court review of Flaherty v. KalshiEX, LLC. The groups are acting with support from members of the International Masters of Gaming Law (IMGL), who serve as their legal advisers.
2. At the center of the dispute is whether the Commodity Exchange Act overrides state gambling laws when a sports bet is offered as a contract tied to an event on a market registered with the Commodity Futures Trading Commission (CFTC). In other words, the legal wrapper is doing a lot of work here, and regulators are not impressed by the packaging.
3. The Third Circuit and the Ninth Circuit reached opposite results. The Third Circuit, at the preliminary injunction stage, found it likely that federal law preempts New Jersey’s sports betting laws as applied to the challenged contracts. The Ninth Circuit reached the opposite conclusion with respect to Nevada law.
4. The brief asks the Supreme Court to resolve that split. The divergence leaves the scope of state authority over these contracts unsettled, which is exactly the kind of uncertainty that creates problems for operators, payment processors, and regulators trying to decide what can be offered, where, and under what controls.
5. The associations frame the case against the backdrop of Murphy v. NCAA in 2018, when the Supreme Court struck down PASPA (the Professional and Amateur Sports Protection Act). Before that ruling, PASPA barred states from authorizing sports betting except in limited cases; after it, each state could decide whether to authorize and regulate sports betting or keep prohibitions in place.

Ben Haden, president of IAGR, said sports betting offered through prediction markets leaves consumers without the protections gaming regulators apply under each jurisdiction’s public policy. He argued the brief rejects the idea that calling a sports bet a contract tied to an event removes it from state rules.

Haden said the risks, without supervision, include access by minors, the absence of proven harm-prevention tools for people with gambling problems who could also be targeted by operator strategies, and exposure to sports integrity issues. He added that regulators need clarity on their authority to enforce safeguards and on the limits that apply in each jurisdiction.