Massachusetts court wades into growing prediction market legal fight

Massachusetts Supreme Court enters prediction market dispute as circuit split deepens

A state supreme court entering a federal preemption fight is not, by itself, unusual. What makes the Massachusetts Supreme Court's position in this dispute structurally different is the company on the other side: not a rogue offshore operator, but a CFTC-designated contract market arguing that the entire body of state gambling law has no jurisdiction over its products.

That argument has now been tested in four federal circuits, and the results do not resolve into a coherent pattern. The Third Circuit found that sports event contracts qualify as swaps under the Commodity Exchange Act, blocking New Jersey's enforcement. The Ninth Circuit found the opposite, concluding the contracts likely fall outside swap definitions. The Sixth Circuit found the contracts probably are swaps, then found that state gaming laws survive preemption anyway. Each of those three readings produces a different legal world for Kalshi to operate in.

The Fourth Circuit has not yet ruled. The Massachusetts Supreme Court has not yet ruled. The Supreme Court petition from New Jersey is waiting, with Kalshi's brief due November 9. That is five unresolved proceedings, each capable of pulling the legal map in a different direction before any single one of them is final.

I have watched mechanism design problems resolve cleanly when all agents face the same information set. This is not that. What the prediction market industry is navigating is a coordination failure across twelve federal judges and at least two state courts, none of whom are bound by each other's reasoning on the central definitional question. The industry's bet — that federal preemption is clear enough to make the circuit disagreements temporary — requires every pending tribunal to eventually converge on the Third Circuit's logic. The Sixth Circuit's ruling alone makes that convergence look strained. It said: even if you win on swap classification, you may still lose on preemption.

Javalin Dedaj, Kalshi's head of litigation, framed the company's position at the Next Predict Summit last Friday with precision: trading on a designated contract market should answer only to the CFTC. That argument is legally coherent. It is also the argument the Sixth Circuit heard and declined to fully accept.

The consensus read is that Supreme Court intervention will settle this cleanly in Kalshi's favor, given the CFTC's proposed rule and the company's Third Circuit win. I think that reading underweights the Sixth Circuit's secondary holding. A Supreme Court that takes the New Jersey case could affirm swap classification and still leave the preemption question open enough that individual state enforcement actions survive. Utah's lawsuit — which names Susquehanna as a co-defendant alongside Kalshi and seeks recovery of between $30.6 million and $61.2 million — would not automatically dissolve under that outcome. The 10th Circuit already denied Kalshi's injunction request pending appeal.

The Massachusetts Supreme Court adds a layer the federal circuit model does not easily absorb. State supreme courts interpreting state gambling statutes operate on their own authority. A ruling that Massachusetts gambling law applies to Kalshi's contracts, grounded in state constitutional or statutory grounds rather than federal preemption, could survive a Supreme Court decision that goes entirely in Kalshi's direction on the federal question.