Conflicting Appeals Court Decisions Highlight Jurisdiction Gap in Regulation of Sports Event Contracts

A panel discussion at the Next Predict Summit in New York underscored the core dispute over sports event contracts offered by Kalshi, Polymarket, DraftKings and similar platforms. Attorneys argued that these are federally regulated derivatives under the Commodity Exchange Act, granting the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction. States, tribes and gaming regulators counter that such contracts constitute sports betting subject to their traditional authority.

The legal landscape features split circuit rulings. In April, the U.S. Court of Appeals for the Third Circuit sided with Kalshi in its case against New Jersey, ruling that sports event contracts qualify as swaps under the CEA with CFTC exclusive jurisdiction. Then in August, the U.S. Circuit Court of Appeals for the Ninth Circuit went the other way in Kalshi’s case against Nevada, concluding that sports event contracts are likely not swaps. That was followed last month by a ruling from the U.S. Court of Appeals for the Sixth Circuit that found sports event contracts are swaps, but even if contracts are swaps, state gaming laws would likely not be pre-empted.

Decisions remain pending from the U.S. Circuit Court of Appeals for the Fourth District and the Massachusetts Supreme Court. The New Jersey case has reached the U.S. Supreme Court, with Kalshi’s brief due by November 9. The CFTC has also issued a proposed rule to define event contracts, including those tied to sports, as swaps.

Industry Positions on Federal Preemption

Javalin Dedaj, head of litigation at Kalshi, told the panel that the litigation stems from the question of operating a national business amid conflicting rulings. “Our argument has been from the start that this is trading activity that happens on a designated contract market (and) should be regulated only by the designated federal regulator for the industry, the CFTC,” Dedaj said. Dedaj added that subjection to 50 different state regulators drives the litigation and that the position rests on the statutory text of the CEA.

Brigitte Weyls, general counsel with Gemini Titan, agreed that sports event contracts have long been contemplated in the derivatives space, citing a 2004 CFTC memo regarding Hedge Street, now Crypto.com. “The markets innovate. They always do,” Weyls said. “There will be new products.”

Josh Sterling, partner at Milbank and former head of the CFTC’s markets participation division, serves as outside counsel to Kalshi. Sterling said the goal is to win because the law is on their side. He noted that companies could expand into other financial products even if the Supreme Court rules against them on event contracts.

According to CDC Gaming, Elliot Stein, litigation analyst with Bloomberg Intelligence and panel moderator, wrote in a recent research note that Kalshi’s September 25 loss in the Sixth Circuit makes Supreme Court review more likely. Stein gives the edge to Kalshi and peers, expecting a SCOTUS decision in late 2027.

Adaptation Strategies Amid Uncertainty

Panelists emphasized that prediction markets will persist regardless of the outcome. Sterling observed that firms may grow beyond sports event contracts into more promising areas. Weyls suggested possible regionalization to different user types if states prevail. Dedaj stated it is not the end of the road if the Supreme Court rules against the industry, as Kalshi continues developing new products while seeking clarity.

Reporting: CDC Gaming

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