In the last few years, prediction markets have exploded. From September 2025 to April 2026, monthly global trading volumes on Kalshi and Polymarket—the two largest prediction-market platforms—went from around $5 billion to $24 billion. Weekly trading volume on Kalshi has grown from $100 million one year ago to over $3 billion today.
Increasingly, contracts on the outcomes of sporting events have become the primary revenue driver for prediction markets, accounting for around 80 percent of revenue for companies like Kalshi. The meteoric rise in prediction markets—and specifically sports-event contracts—has ignited a fierce debate over whether this activity is merely sports gambling in disguise.
The debate may take years to settle, but it’s currently overflowing into courtrooms across the country as part of a protracted legal fight to determine what level of government has regulatory authority over these sports-related prediction markets. The legal issues are already splintering federal judges, teeing up a likely Supreme Court showdown in the not-too-distant future. But how would the justices rule in such a case? To make some educated guesses, one first has to digest the legal arguments at play.
On the one side, state governments assert that these sports-event contracts are functionally the same as betting and therefore should be subject to state gambling laws (some states regulate sports betting, while others ban it outright). On the other side of the debate, companies like Kalshi argue that the Commodity Futures Trading Commission (CFTC)—the federal government agency in charge of U.S. derivatives markets—has exclusive legal authority over prediction markets and therefore preempts state law.
This preemption debate is relatively straightforward when broken down into digestible pieces. There are three statutes at issue: the 1974 amendments to the Commodity Exchange Act (CEA); the Commodity Futures Modernization Act of 2000; and the Dodd-Frank Act of 2010. In one form or another, Kalshi and its prediction-market peers have cited all three of these authorities as granting the CFTC exclusive jurisdiction to regulate sports-event contracts.
In 1974, the CEA was amended to create the CFTC and to expand the definition of what constitutes a “commodity” subject to the agency’s jurisdiction. After 1974, commodities were meant to include “all other goods and articles … in which contracts for future delivery are presently or in the future dealt in.” The only exceptions were onions and motion-picture box-office receipts (seriously).
Kalshi and other prediction-market platforms—and even current CFTC chair Michael Selig—have cited to this everything-except-for-onions-and-box-office-receipts argument as proof that the CFTC has exclusive jurisdiction over things like sports-event contracts.
The second piece of the debate hinges on the Commodity Futures Modernization Act of 2000, in which Congress extended the CEA to cover “excluded commodities,” which are defined as an occurrence or contingency that is beyond the control of the parties involved and is “associated with a financial, commercial, or economic consequence.” Kalshi and others have used this language to argue that sports-event contracts are “excluded commodities” and thus once again subject to exclusive CFTC jurisdiction.
Finally, in Dodd-Frank in 2010, Congress added a new class of derivatives—“swaps,” over-the-counter contracts where parties exchange payouts based on the outcome of a future event—that are also regulated by the CFTC; again, the prediction-market platforms argue that swaps encompass sports-event contracts as well.
The crux of the legal debate boils down to whether these various statutory hooks are sufficient to establish that the CFTC has exclusive authority over sports-event contracts and thereby preempts state law in this realm. So far, federal judges have been heavily divided on this issue.
A recent holding by the Third Circuit Court of Appeals is illustrative. In April, the Third Circuit ruled against the state of New Jersey and in favor of Kalshi on these preemption arguments. In a two-to-one decision, the majority held that the definition of swaps was broad enough under the CEA and the subsequent Dodd-Frank amendments to include sports-event contracts.
But in a lengthy dissent, Judge Jane Roth invoked what’s known as the presumption-against-preemption principle, which assumes that federal law does not preempt state law—especially in realms traditionally reserved to the states, such as gambling regulation—unless Congress was clear in its intent to displace the states. In other words, the dissent essentially argued that it defies credulity to think that Congress was trying to backdoor legalize sports gambling through the CFTC, which is an agency historically tasked with financial and commodity governance, not gambling regulation.
No other federal appeals court has ruled on the issue yet, but that won’t be the case for long. Also in April, the Ninth Circuit heard oral arguments in a case involving the same issues, but this time pitting Nevada against Kalshi. During the arguments, the Ninth Circuit panel voiced substantial skepticism toward Kalshi’s claims. If the Ninth Circuit rules against Kalshi as expected, it would tee up a “circuit split,” which exponentially increases the chance that the Supreme Court will agree to step in.
Of note, in both the Third Circuit and Ninth Circuit panels, all the judges involved were Republican-appointed judges, showing that the preemption arguments at play in these cases are not likely to break down along ideological lines. Given this reality, how might the Supreme Court be expected to rule, if and when it decides to do so?
There are two key lenses that can provide important clues. First, the justices in recent years have shown particular interest in cases involving what’s become known as the “major questions doctrine.”
Under the doctrine, the Court has looked askance at attempts by agencies to exert authority over questions of major economic or political significance based on “vague language” in a “long-extant” statute. Arguing that the CFTC should suddenly be designated a national gambling regulator after a 50-year run as a financial and commodities regulator is the type of agency power grab that could implicate the major questions doctrine.
Some have argued that the doctrine may not be relevant to these cases given that laws like Dodd-Frank are hardly long-extant statutes. But as attorney Daniel Wallach has noted, Kalshi and its cohorts—and even the CFTC itself—have in fact claimed that the CFTC has had authority over sports-event contracts since at least the 1974 amendments to the CEA. That makes it just as old as the long-extant statute at play in West Virginia v. EPA, where the Supreme Court ruled that the Environmental Protection Agency’s expansive reading of a 52-year-old statute ran afoul of the major questions doctrine.
A second informative lens draws upon my Manhattan Institute colleague Josh Blackman’s analysis of the current Supreme Court as the “anti-preemption Court.” Recent preemption cases considered by the Court have resulted in voting splits that rarely break down along ideological lines. Earlier this year, in Hencely v. Fluor Corp., the Court issued a 6-3 decision finding that a state-law tort claim was not preempted by federal law. The majority opinion was written by Justice Thomas and joined by Justices Kagan, Sotomayor, Jackson, Gorsuch, and Barrett. In dissent were Justices Alito and Kavanaugh, joined by Chief Justice Roberts.
Also this year, the Court issued a ruling in Montgomery v. Caribe Transport II, LLC, which involved another state-law tort claim. This was a unanimous holding against preemption, but it included a concurring opinion from Justices Kavanaugh and Alito, arguing that the case was “closer than the Court’s opinion perhaps might suggest.”
As Blackman lays out, these recent cases suggest a pattern. Justice Thomas and Gorsuch seem inclined to join the three Democratic-appointed justices to form an anti-preemption majority. Justices Kavanaugh and Alito tend to espouse more pro-preemption views, while Justice Barrett and the Chief Justice are the proverbial “swing votes.”
Putting this all together, the path to victory here for state gambling agencies would likely be a coalition of the three Democratic-appointed justices alongside Thomas and Gorsuch (with maybe a Roberts or Barrett thrown in for good measure).
This isn’t an ironclad rule. This past term also saw the Court hand down a decision in Monsanto Co. v. Durnell, in which it ruled 7-2 in favor of preemption, showing that the justices can still come out either way on these issues, depending on the statutory issues involved. (Although, of note, Monsanto included a dissenting opinion by Justices Jackson and Gorsuch, as well as a concurrence by Justice Thomas, again showing the non-ideological voting splits often present in preemption cases).
We won’t know how the Supreme Court will rule on sports-event contracts until it takes up the case. But the major questions doctrine and the Court’s recent preemption case voting splits suggest that preemption is far from a foregone conclusion.
Jarrett Dieterle is a legal policy fellow at the Manhattan Institute.
Is there a prediction market for which way SCOTUS would rule?
Because at under 65 cents, I’d favor the no preemption side (i.e. states do have the right to regulate). 😏
The specific claim that Congress gave the CTFC the right to regulate sports betting contracts in 1974 doesn’t remotely pass the smell test.
I’d further predict that the Chief Justice would rule with the majority on this, but wouldn’t buy at much over 50 cents.
Excellent piece, Jarrett. A really thoughtful framing of the legal issues here. Two observations:
First, I think 2000 is the more natural starting point for the statutory history than 1974. The 1974 amendments do not specifically address occurrences or contingencies; that language enters the statute in 2000, and the 2010 framework builds on it.
Second, I would separate the question whether the CFTC should become, in effect, a national gambling regulator from the preemption question. The former is an important legal question, but analytically distinct from whether state gambling laws may be applied to transactions on federally regulated markets.