States ask Supreme Court to take on prediction markets

While the Supreme Court is facing a pretty major legal battle over whether online gambling markets like Kalshi and Polymarket are subject to state gambling laws or federal financial regulation. I know that every time I turn on the TV, so you probably feel the same, it feels like nothing but gambling ads for these apps and websites. And some are wondering if it's gone too far. Earlier, Fox 35 had the chance to speak with Daniel Wallach, he's an attorney, about this exact topic and whether any action can actually be taken against these sites. Let's listen in. Eight years ago, the United States Supreme Court gave states the right to determine for themselves whether and to what extent sports betting should be legal in state borders. And that was Murphy v. NCAA. Since then, 38 states or 39 states plus the District of Columbia have passed new laws legalizing sports gambling. Along comes Kalshi. Without complying with state law, without getting a state gaming license, basically introducing sports gambling across all 50 states. And they're wrapping it up in the packaging of a commodity or as a financial investment when in reality. It's sports betting masquerading as a financial instrument. And that is a that is a core concern, not only to the state gambling operators, but to all 50 states which are being deprived of not only the tax revenues associated with Kalshi's sports gambling, but there are no consumer protections that are manned. And, you know, all the state consumer protections regarding... Problem gambling, responsible gambling, advertising and marketing restrictions and all the boatload of consumer protections, age minimums of 21 and over. Kalshi is skirting all of the state consumer protection laws in their sports event contract platform operated as a prediction market is basically flouting the state laws of all 50 states and is subverting. And interfering with tribal sovereignty because tribes have the exclusive right to conduct gaming on their own lands and now they are facing competition from these sports event contracts. So it's an issue that cuts across all spectrums, all political spectrums. You have 50 states that have an interest in this, hundreds of Native American tribes. Hundreds of gaming operators, these multi-billion dollar financial exchanges, which are offering these sports betting contracts, and the federal government is in cahoots with Kalshi and the other operators. It hits on all, it checks all the boxes for a sort of a tailor-made, high-profile Supreme Court case, given the magnitude of the stakeholder interest involved. And we now have 40 Federal lawsuits percolating through the federal courts across the country involving states, tribes, and prediction markets, and we've reached the point where there's a deep enough circuit split. With two federal appeals courts ruling for the states, one circuit court ruling for Kalshi, I think the moment of truth has arrived, and this is the term in which the Supreme Court will address sports prediction markets, and I would expect the Supreme Court to uphold the principles that espoused in Murphy v. NCAA and say that this is a states' rights issue, and that since Congress has not directly regulated sports gambling, the states are free to act on their own. And to regulate within their state borders as they see fit. And one of the things I think is so interesting about these platforms like Kalshi and Polymarket, you can also bet on whether the Supreme Court takes this case up at all. It's not necessarily just limited to sports. Does that have any implications on the legality of it? It might be offensive to the court to see prediction markets on whether a court is going to decide a case. That's a third rail that these companies should never cross. And to my knowledge, Kalshi is not doing it, but Polymarket's non-U.S. affiliate. may be offering contracts on that. And certainly, courts are not going to take too kindly to betting on whether or not courts decide cases or how they decide cases or whether they take up a case. But that's just sort of the optics are poor. The reality is that these companies are offering not just straight on sports bets as to who is going to win or lose a game and whether the point spread is covered, but they're offering props, prop bets. parlays. Some companies are offering like 20 or 30 leg parlays. Where is the price discovery or the hedging interest that underlie those kinds of contracts? They don't exist. All of this is built on this false premise. That sports event contracts serve some kind of hedging utility, and it allows institutions and stakeholders to sort of hedge risk. And I can understand who wins or loses a Super Bowl may have some direct financial impact on people. But come on, Daniel Jones throwing for 175 yards? 20-leg parlays across multiple sports, what is that hedging against? It is a straight-on sports bet. And bets like that are regulated by the states. And when they're offered without state-issued gambling licenses in violation of state gambling laws, states rightfully are objecting to these types of contracts and are going after uh Calshi and others through either cease and desist letters or civil or criminal enforcement actions i mean that's really where this is ultimately headed but the supreme court is going to have the last word but the ultimately the precedent and the um the the the legal principles are in my view decidedly in favor of the states because of the Murphy versus NCAA decision, which gave the states the right to regulate sports gambling. And also because the Commodity Exchange Act has no clear language that even gives the CFTC the right to regulate sports event contracts. And ultimately, this is going to come down to what did Congress intend? And when Congress passed the Dodd-Frank Act in 2010 to give the CFTC exclusive jurisdiction over swaps and other commodities, nowhere in that federal law was there any express language or clear indication that Congress was outsourcing to the CFTC the opportunity or the right to become the nation's sports gambling regulator. And without clear congressional intent or clear congressional authorization. This runs afoul of so many different legal doctrines that if this is decided legitimately, apolitically, and on the basis of existing legal principles, the states and the tribes should ultimately prevail at the Supreme Court. So Calshi may go the way of the Edsel, but it's going to be months if not longer before we get any final resolution on this before the Supreme Court. Is there a chance that we see? Kind of what we're seeing with sports gambling, we're certain where Calshi is still able to operate in certain states. Well, I mean, the answer is pretty obvious. If states have the right to regulate license or ban sports prediction markets, Kalshi has a pathway into state compliance. They could either decide not to offer the contracts. They could comply with state licensing regimes and go about trying to procure state-issued gambling licenses. Or they could persuade state legislatures to, you know, expand, you know, the gaming landscape to afford. an opportunity for these sports prediction markets, albeit under state regulations and state licensing. So Kalshi doesn't necessarily go away if they lose. They just can't play in the sandbox without any state regulation. They are operating in what is essentially a self-regulated environment because the CFTC is not really that much of a watchdog because the CFTC regulations don't even address the consumer protection concerns around sports gambling. There's no mandatory integrity monitoring. Cooperation and information sharing concerning the possibility of manipulated sporting events. The CFTC regulates commodities, derivatives, wheat, oil, corn. Thank The expertise of the agency for whatever it is, is completely mismatched. When compared to the sports regulatory environment, in fact, you the CFTC has undergone significant job losses as a result of the, very you know, Elon Musk, you know, job cuts, they are operating at 25% less capacity. much. than it had one year earlier. There are barely as many employees in the CFTC as exist in the entire Nevada Gaming Control Board, which is the sports betting regulator of Nevada. 1% of the U.S. population is in Nevada, but Nevada's gaming regulators are as numerous as the regulators which work with the CFTC, which is supposed to regulate the entire country, not just one state. It is a potential, not a looming... integrity disaster to have this agency oversee what is the equivalent to sports gambling. They have no expertise in this area. So what's the path forward for the Supreme Court and for the CFTC? Well, the path forward is the Supreme Court has to take the case up. And we have three petitions for writ of certiorari that have been filed already out of rulings from the Ninth Circuit U.S. Court of Appeals. which favored the state of Nevada and ruled against Calshi, and out of the Third Circuit U.S. Court of Appeals, which ruled in Calshi's favor and against New Jersey. Those cert petitions are going to be distributed to the U.S. Supreme Court justices for their weekly conferences in mid-December, and we should find out on or about January 11th whether the Supreme Court will grant and take the case up on the merits. If that were to happen, we would likely be getting an oral argument in March or April. There would be expedited briefing, a consolidation of the Third Circuit and Ninth Circuit cases for oral argument, and we stand a good chance of getting a decision on the merits from the Supreme Court somewhere around June of 2027 before the summer recess. If the court does not take the case up now, it could be another year. Before there is an ultimate resolution in light of the fact that the Supreme Court takes a summer recess and if it doesn't grant cert in January, we're probably looking at an oral argument later in 2027 and a decision in 2028. And from the from the sports leagues perspective, in particular from the NFL's vantage point, every week in which sports gambling is occurring without any integrity protections is an existential threat. to the integrity of the sporting events and the wagering environment. So for the NFL, which has filed an amicus brief with the U.S. Supreme Court, they're saying that the time is now. And for the states, this is also a matter of urgency because there is all this unregulated sports betting occurring without state consumer safeguards. So I think given the sheer number The deepening circuit split. The wide spectrum of stakeholder interests involved, I think the court is going to feel some sense of urgency to take this matter up now rather than kick the can down the road to next year. So I think it's a June 2027 decision, and we'll probably find out in two or three more months whether the court is willing to take the case now.