The U.S. Supreme Court has been urged to consider New Jersey’s case against Kalshi, following a recent filing from the International Association of Gaming Regulators (IAGR) and the North American Gaming Regulators Association (NAGRA). The joint amicus brief, submitted on October 2 in the case of Flaherty v. KalshiEX, contends that the Commodity Exchange Act (CEA) does not allow for a sports wager to escape state gambling regulations simply because it is categorized as an event contract on an exchange that is registered with the Commodity Futures Trading Commission.
The regulatory groups emphasized that the conflict is a pressing issue, noting that while the Third Circuit Court of Appeals ruled in favor of Kalshi in its dispute with New Jersey, the Sixth and Ninth Circuits have upheld state authority.
The brief states, "The same product, offered by the same company under the same federal registration, is presently shielded from state regulatory authority within the Third Circuit and subject to it within the Sixth and Ninth."
This filing bolsters New Jersey's petition, which was initially filed in September, marking the second amicus brief in support of the state. Previously, the National Council of Legislators from Gaming States submitted a brief on September 22.
IAGR President Ben Haden emphasized the need for clarity regarding regulators' authority to implement established safeguards and enforce limitations on gambling within their jurisdictions. Both lawmakers and gaming regulators have indicated that delineating where federal derivatives law concludes and state gambling authority commences is essential.
IAGR and NAGRA expressed agreement with the Petitioner’s position, asserting that the Sixth and Ninth Circuits maintain a more accurate interpretation of the law. Haden pointed out concerns regarding the risks that sports wagering through prediction markets presents to consumers, stating, “Our brief challenges the claim that offering a sports wager as an event contract exempts it from state gambling laws.” He added, “Without the protection and oversight provided by gaming regulators, we are highlighting the risks of underage players being able to access gambling freely, problem gamblers being left without proven harm-prevention tools — or worse, being targeted by operators — and the integrity of sport being put at risk.”
A significant portion of the brief outlines the responsibilities of gaming regulators, detailing what they would forfeit if contracts listed on exchanges were deemed outside their purview. These responsibilities include:
– Licensing and suitability reviews
– Approving events and wager types
– Integrity monitoring
– Enforcing age limits
– Self-exclusion provisions
– Rules regarding prohibited participants
– Regulator access to operational records
– Enforcement measures against unlicensed operators
The brief references regulations implemented by various states, including Ohio, Illinois, Massachusetts, Tennessee, Nevada, New Jersey, and Colorado. IAGR and NAGRA argue that effective integrity monitoring relies on comprehensive oversight of the market, asserting that any betting activity that occurs outside this regulatory framework could compromise their ability to monitor manipulation.
Further highlighting the importance of these regulations, the brief notes the inclusion of tribal gaming perspectives, as NAGRA comprises tribal regulators. It mentions that sports betting is classified as Class III gaming under the Indian Gaming Regulatory Act (IGRA) and draws attention to instances in states like Maine and Michigan, where segments of their mobile market have been designated for tribal use. If the same products are offered to the same customers outside of these compacts, tribal regulators would be hindered in enforcing their negotiated rights.
The narrowing split among federal circuit courts exemplifies the current legal ambiguity surrounding Kalshi’s operations. The Third Circuit’s decision in April remains the sole appellate victory for Kalshi, which asserted that contracts are likely swaps and that federal law might override New Jersey's sports-wagering regulations.
In August, the Ninth Circuit ruled that Nevada’s gambling laws were applicable to contracts on prediction markets, including a decision in September favoring tribes in their pursuit to block sports event contracts on tribal land. The Sixth Circuit, also in September, permitted Ohio and Tennessee to enforce their gambling laws against such event contracts, determining that the CEA would not preempt state laws, even if the contracts were classified as swaps.
The Fourth Circuit is also poised to render a decision after hearing Maryland’s case in May, which remains pending, along with New York's appeal in the Second Circuit.
The brief warns that additional circuit court rulings would not result in harmony, but rather exacerbate the inconsistency among jurisdictions governed by conflicting regulatory frameworks.
New Jersey’s petition is not isolated; Robinhood and Crypto.com have similarly requested the Court to review its Ninth Circuit loss relating to Nevada. Kalshi has not submitted its own petition but has requested a full rehearing in the Ninth Circuit regarding the Nevada case.
As the Court reconvenes for the new term, prediction markets were notably absent from its initial list of cases to be addressed.
