CFTC jurisdiction dispute leaves prediction markets in legal limbo

Jason Robins said something worth pausing on at the Next Predict Summit in New York. DraftKings, he argued, has put itself in a position where it wins regardless of how the Supreme Court rules — because it separated its prediction market operation from its state-licensed sports betting business before the legal question was settled. That structural decision, made before the outcome was clear, is the thing worth examining.

The legal dispute is now spread across four federal circuits and the Massachusetts Supreme Court, and the circuits are not agreeing. The Third Circuit sided with Kalshi in the New Jersey case, finding that sports event contracts qualify as swaps under the Commodity Exchange Act and fall under exclusive CFTC jurisdiction. The Ninth Circuit went the other way in Kalshi's Nevada case, finding those contracts are likely not swaps. The Sixth Circuit produced a third position: swaps, but state gaming laws probably not pre-empted anyway. That is three circuits, three outcomes, one statute.

Javalin Dedaj, Kalshi's head of litigation, framed the company's position at the same summit with precision: trading on a designated contract market should be regulated by the designated federal regulator, and no other. The states and tribal gaming authorities frame it differently — when someone puts money on a sporting event, that is sports betting, and Congress did not intend the CEA to strip states of their traditional authority over gambling. Both positions are internally coherent. That is what makes the circuit split genuinely difficult.

The CFTC has issued a proposed rule that would expressly define event contracts — sports, political, cultural, weather — as swaps, which would formally resolve the definitional question the circuits have split on. Whether that rule survives its own legal challenges is a separate problem. Kalshi has until November 9 to file its Supreme Court brief in the New Jersey case.

My read on where this lands is different from the consensus forming around the summit coverage. The reporting frames this as a binary: federal jurisdiction holds, or states win and prediction markets adapt. I think the more likely outcome is a narrower Supreme Court ruling that affirms federal jurisdiction on the definitional question — are these swaps — while leaving the pre-emption question open. That would resolve the Third-Ninth split without settling whether a swap can still be regulated by a state as gambling. It would also leave companies like Kalshi in a structurally ambiguous position for another litigation cycle.

DraftKings' decision to ring-fence its prediction market operation is not just defensible under this reading — it is the only position that does not require betting on a clean resolution. Robins built a hedge into the corporate structure itself. In my experience with regulatory uncertainty of this kind, the companies that survive the transition period are the ones that priced the ambiguity into their design before the court forced it on everyone else. The ones that staked everything on a single outcome tend to find that even favorable rulings come with conditions they did not model.