New Jersey asks Supreme Court to decide who governs prediction markets

Gaming regulators from 39 states and the District of Columbia filed supporting briefs last week urging the Supreme Court to take up Flaherty v. KalshEX, the case that will settle whether event contracts are federal swaps or state-regulated wagers. New Jersey is the named petitioner. The NFL filed its own brief the same week, arguing that states are better positioned to oversee sports-related contracts. The alignment — state attorneys general, gaming commissions, and a professional sports league, all pointing the same direction — is the kind of coalition that gets a certiorari petition granted.

The CFTC knows this. Chairman Michael Selig's two proposals, which formalize what the agency sent to the White House regulatory review office on September 28, are not primarily about market structure. They are about arriving at the Supreme Court with the definition already in print. The first rule would expand the swap definition to cover event contracts tied to sports, politics, weather, and cultural events. The second, an interim final rule effective on Federal Register publication, draws the opposite boundary: casino-style wagers and sportsbook bets are excluded. One rule extends federal jurisdiction. The other concedes the territory states have always occupied. Together they give the CFTC something a litigant's brief cannot — a final agency action that a court would have to find arbitrary and capricious to displace.

The circuit split between the Third and Ninth is what put this case on the Supreme Court's radar. Two federal appellate courts read the same Dodd-Frank language and reached incompatible conclusions about whether event contracts qualify as swaps. That kind of split is precisely what certiorari exists to resolve, and the 39-state coalition filing makes it harder for the Court to decline. The CFTC's interim rule does not eliminate the split — it sharpens it, because now any court reviewing the question is also reviewing an agency's formal interpretation, which changes the standard of deference available after Loper Bright.

This is where I think the reporting undersells the risk for Kalshi and Polymarket. The conventional read is that the CFTC's rulemaking strengthens their position — the federal regulator has asserted exclusive jurisdiction, and they hold federal licences. That logic holds if the Supreme Court defers to the agency. Post-Loper Bright, it does not have to. The Court eliminated Chevron deference last term. An agency's interpretation of its own statutory authority is now a legal question the Court decides fresh, without thumb on the scale for the agency's reading. Selig's swap definition, however formally published, does not arrive at the Court carrying the weight it would have carried two years ago.

What the 39-state coalition has that the CFTC does not is a clean statutory argument: Dodd-Frank's swap definition was written for financial instruments, and a bet on which team wins Sunday is not a financial instrument by any ordinary reading of that phrase. That argument does not require deference. It requires only that the Court read the statute. The NFL's brief adds a practical dimension — that sports integrity enforcement sits with state gaming commissions, not a derivatives regulator whose examiners have never set foot on a casino floor.