‘markets’ Or ‘gambling’: The Brewing Supreme Court Fight Over Prediction Markets

A nationwide brawl between dozens of states and the prediction markets championed by President Donald Trump has landed at the Supreme Court.

The clash, if taken up, would mark a blockbuster showdown over whether states or the federal government should police prediction market platforms like Kalshi and Polymarket U.S., whose rise has ushered in a new era of American wagering. It could also define the future of sports betting in the U.S.

It’s pitting Republican and Democratic state attorneys general, dozens of Native American tribes, and the gambling industry against the prediction markets — a new class of financial upstarts that count major Silicon Valley investors, financial titans and Trump among their supporters. Trump’s family has ties to the industry, and a top Wall Street regulator in his administration has thrown his weight behind the companies in court.

The prediction markets argue they are federally regulated financial exchanges and shouldn’t be subject to state and tribal rules. If they prevail, it would cement their status under a nationwide framework set by Trump’s regulators.

But the states say prediction markets are no different than traditional sports betting platforms and should fall under their gambling rules. To them, the clash is a referendum on gambling more broadly and the fate of state gaming taxes, which totaled around $18 billion in 2025. Tribal leaders, meanwhile, say it’s one of the biggest threats to tribal sovereignty ever. On Wednesday, New Jersey asked the Supreme Court to take up the issue.

“These guys are selling alcohol in a juice box and calling it juice,” Washington Indian Gaming Association Executive Director Rebecca George said. “A bet on a football game does not become a financial product just because it is traded on an exchange. Federal authority over derivatives is not a license to rebrand gambling in order to override state and tribal gaming laws.”

The Commodity Futures Trading Commission, a federal regulator led by Michael Selig, has backed the prediction markets in and out of court and even tapped powers not used in decades to do so. Together, the CFTC and prediction markets argue the platforms don’t offer sports betting — but a type of financial instrument known as swaps. And because they trade on CFTC-licensed financial exchanges, that means they fall exclusively under the agency’s authority.

“We are not a casino. We don’t operate table games. We don’t operate slot machines,” Kalshi General Counsel Rick Heaslip said. “We have markets.”

The prediction markets, which now boast multibillion-dollar valuations, provide the chance to wager on just about everything — including elections, the Oscars and the S&P 500. And, as financial exchanges dealing in so-called derivatives products, they’ve historically fallen under the CFTC’s purview.

But their entry into sports nearly two years ago set off a firestorm among critics, including 44 state attorneys general, who argue that the prediction markets are nothing more than sportsbooks with fancy names.

“I don’t care how you parse it, you just go on these sites [and] most of the wagering you see is around sports betting and gambling,” Sen. Catherine Cortez Masto of Nevada told POLITICO. “It is gambling. There really is no distinction between the two.”

The prediction markets, critics say, should have to follow existing state and tribal rules for sports betting — and stay out of the 11 states where such activity is illegal. What’s more, the states argue the markets are sidestepping their gaming taxes, robbing them of critical funds that, in many cases, go toward schools, roads and local communities.

Cortez Masto, a Democrat, said in an interview that the “states and tribes know how to do this” but the CFTC doesn’t. “They have never regulated this. Now you have one commissioner thinking he can step in and control this market and adequately regulate it,” she added. “It’s nonsense.”

A CFTC spokesperson, asked for comment about Cortez Masto’s remark, said the agency is looking to regulate derivatives trading, not casino gambling. “The CFTC understands the difference in how these products operate, and the states ignore those differences to protect special interests,” the spokesperson, Beau Brooks, said.

New Jersey’s request came less than a week after an appellate court ruled that Kalshi is not immune from Nevada’s gambling laws. That decision conflicted with another court’s ruling earlier this year that New Jersey’s gaming laws don’t apply to Kalshi, a split that, legal experts say, all but guarantees the justices will weigh in.

For the prediction markets, wagering on sports should be seen the same as trading on the price of oil or whether the Federal Reserve will hike borrowing costs this month. The markets, Kalshi’s Heaslip said, are regulated by a strict CFTC-enforced regime that factors in issues like market manipulation and insider trading. Kalshi has also taken steps to address critics’ concerns that its platform could fuel gambling addiction.

Kalshi, meanwhile, doesn’t have the “predatory” incentive structure that underpins casinos and sportsbooks, Heaslip said, pointing to their tendency to boot consistent winners off their platforms. That’s because those companies are trading against their users, while Kalshi matches traders with one another.

And while Heaslip acknowledges the fight’s stakes are high, he said they’re not quite as dire as the gaming lobby suggests.

“In our view, we really do have different products” that can co-exist with one another, Heaslip said.

How the justices will view the case is not clear, said Josh Blackman, a professor at South Texas College of Law who once set up a prediction market following the Supreme Court. Issues of federal preemption and sports tend not to cut cleanly across the ideological spectrum, he said.

“This case scrambles all the usual political lines,” he said, before adding that “none of these laws were created with things like Kalshi in mind.” “Prediction markets were these fringe things that nerds use to predict a presidential election. We’re in uncharted waters in many regards.”

The Supreme Court fight doesn’t just carry major stakes for those involved in the legacy sports-betting business. It also has implications for the prediction markets, where sports-related wagers on NFL games, the World Cup and even cricket matches have proven massively popular with users. Kalshi says sports currently account for about 70 percent of the platform’s activity.

“Prediction markets will be here forever,” said Underdog Chief Legal Officer Nick Lundgren, who, while at Crypto.com, helped launch the first sports prediction markets in the U.S. “The Supreme Court is going to decide whether or not they include sports.”

But the prediction markets have a powerful ally in Selig’s CFTC.

With Trump’s apparent blessing, the agency has launched a barrage of lawsuits and legal maneuvers against states that have sought to clamp down on the prediction markets. In Michigan and New York, it even invoked its emergency powers to tell the prediction markets to ignore potential court orders that would hamper their ability to operate nationwide.

“Chairman Selig has been clear that event contracts offered on prediction markets constitute swaps, including where the underlying event relates to sports or culture,” the CFTC’s Brooks said.

The agency, he added, “will continue to vigorously defend its exclusive jurisdiction over these markets in the courts.”

State oversight of the prediction markets also isn’t viable, industry backers say. That’s because the markets need to match buyers and sellers with one another all day — and fracturing that activity up by state lines, they say, won’t allow them to operate a well-functioning marketplace.

Either way, both the states and the federal government view the case as existential.

In New Jersey’s case, the Garden State told the justices Wednesday that if sports betting is deemed a federally regulated financial activity, it risks making “sports wagers at classic sportsbooks like brick-and-mortar casinos — whether in Atlantic City, Las Vegas, or on tribal lands — illegal” and throwing “the entire industry into turmoil.”

But the CFTC isn’t looking to regulate casinos or sportsbooks, Brooks said. The agency rather just wants to oversee the prediction markets.

“The states’ position threatens to swallow all the CFTC’s jurisdiction,” he said. “By the states’ logic, they could ban event contracts on elections, the weather or a Fed rate decision just by calling it ‘gambling.’”