Supreme Court Fight Could Reshape How Americans Access Prediction Markets

The state of New Jersey has this week taken the legal battle over the multi-billion-dollar prediction market business to the US Supreme Court. The Supreme Court's decision could have wide-ranging implications across the US and global financial sector, with these markets already trading tens of billions of dollars monthly.

Prediction markets, Kalshi, and newer competitors allow people to put down money on financial-style markets linked to the outcome of real-world events – including the price of Bitcoin next year, as well as sports events. Because of the trading elements, they are regulated federally as financial contracts by the Commodity Futures Trading Commission, rather than locally by states as gambling.

That is despite having markets like "Who will win Super Bowl LXI in 2027?" (18% on the Los Angeles Rams as favorites, if you were wondering). If that sounds like sports betting to you, a lot of states tend to agree – and now New Jersey has taken the fight to the Supreme Court.

New Jersey Leading the Charge to SCOTUS, Circuit Courts Split

New Jersey's appeal to the top US court follows the April decision by the 3rd Circuit Court, which ruled in favor of Kalshi and against the Garden State. However, in late August, the 9th Circuit Court ruled against Kalshi and in favor of Nevada, determining that states have the right to regulate prediction markets.

This created a split decision among the Circuit courts, which has, historically, been a favorable condition for an appeal to the Supreme Court. That has now come to pass with New Jersey's appeal to the highest court. Whether the Supreme Court will take on the case is not certain, and the outcome will be hotly contested.

If it does hear the case, SCOTUS will face a lot of scrutiny over the decision. The administration of President Trump has largely supported the CFTC in regulating prediction markets, and the regulator has filed counter-lawsuits against Illinois, Connecticut, and Arizona for trying to override its authority by locally demanding prediction markets cease offering sports contracts in their state.

However, state regulators and governments feel they are missing out on potentially billions of dollars in tax revenues if prediction markets were regulated like gambling. In the few states that still outright ban all forms of gambling, such as Utah, politicians feel their state decisions are being violated.

The Core Legal Argument – Betting or Not?

Prediction markets say they're not gambling. You can buy and sell your contracts, and there is no house that sets odds. Nevertheless, as well as putting money down on the price of Bitcoin at the end of the day, or who the next White House Press Secretary will be, you can back the Seahawks to beat the Patriots in Week 1 of this season's NFL. Is that sports betting? Even though you can technically sell the contract before the bet settles?

That overlap is also visible in how prediction markets are presented to consumers. Covers.com, for example, maintains a guide to the best prediction sites, comparing platforms on factors such as market variety, promotions, payment methods, and user experience. The format is similar to traditional sportsbook comparison content, even though prediction markets operate under a different regulatory model.

As well as having wide interest from sports bettors, prediction markets are already being used by financial traders and even insurance companies in ways that would not happen with traditional sportsbooks. Even on sports-related markets.

For example, this week, an insurance company placed five Kalshi trades on Louisiana State University's college football team to win – totalling a $3 million payout if they're correct. Coincidentally (maybe) this matches the $3 million bonus that LSU could pay out if new coach Lane Kiffin wins the national title.

While insurers have often looked to hedge teams' bets on big bonus contracts in sports, this is the first time such a move has been linked to prediction markets. Is this good news or bad for the Kalshi case that could potentially now go to the Supreme Court?

A Case of National Significance With Many Interested Parties

The Supreme Court still has four of the five judges who in 2018 voted in favor of overturning the Professional and Amateur Sports Protection Act. New Jersey was the appellant in that case, which quickly led to the explosion of regulated legal US sports betting.

The key argument in that case was about states' rights to self-regulation and invoked the 10th Amendment on state rights. This case could follow along similar lines, seeing as the main issue is a state's right to determine what it sees as betting or not within its own borders.

However, that case was arguably less politically significant given the huge amount of money now already being circulated through prediction markets. Given that Kalshi alone recently saw a trading volume of $50 billion in a month – the stakes are very high.

Not only that, but President Trump's son Donald Jr. is a listed advisor and investor to both Polymarket and Kalshi, while prediction markets have been linked to controversial instances of insider trading. Which is not to mention the millions of individual traders signed up to these platforms or other big stakeholders.

Interestingly, the two big players of the US sports betting world could now also be split on this decision. While the large industry group the American Gaming Association, which represents both companies, is broadly against prediction markets, FanDuel and DraftKings now run their own prediction markets.

This has been complicated further by DraftKings' prediction market being a relative success, if not on the scale of Kalshi or Polymarket. It currently trades nearly a billion dollars monthly, annualized to around $11.3 billion, so it is a significant business in its own right. However, FanDuel's prediction market has not been so popular.

For the crypto sphere, the future of Polymarket will likely have a big impact on the price of various cryptos. The platform is crypto-first internationally, and with billions traded monthly, it makes up around 1% of the global crypto trading market. Crypto traders also use Polymarket and Kalshi for hedging, as they offer crypto price markets or markets on related international events such as Federal Reserve rate decisions – or indeed significant industry-related court cases.

On a related note, Kalshi is not offering markets on whether or not the Supreme Court will hear the case or what its decision could be. Polymarket, however, is.