New Jersey seeks Supreme Court ruling on sports event contract authority

New Jersey asks Supreme Court to settle who governs sports event contracts

Robinhood's event contract business crossed a threshold in the second quarter that most people in the industry were not expecting to see until next year: $156 million in revenue from prediction markets, more than its equities desk, more than crypto. That number is not background. It is the reason five state attorneys general are now moving.

New Jersey petitioned the Supreme Court last week to answer a question that Nevada, New York, and Minnesota have each tried to settle in their own courtrooms without producing a definitive answer: whether a CFTC-regulated prediction market can offer sports event contracts to retail customers without a state gaming license. The petition puts the same argument before nine justices that Kalshi has been losing at the district level for the better part of a year — that these products are swaps, that swaps are federal instruments, and that state gaming law stops at the border of federal derivatives regulation.

The states' position is simpler. A Nevada judge found in April that sports event contracts are, in practice, indistinguishable from traditional sports betting, regardless of how they are structured for regulatory purposes. If it pays out when your team wins, a state gaming regulator has an interest in it. That logic has held up better in the courts than the platforms expected.

The consensus read from the legal commentary I have seen treats this as a close federal preemption question with the platforms having a real argument. I think that framing is too favorable to the industry side, and I want to say why.

The CFTC's authority over derivatives rests on the assumption that the instruments in question serve a hedging or price-discovery function. Sports event contracts are difficult to defend on those grounds. A contract that resolves on whether the Chiefs cover the spread is not a hedge against any commercial exposure. The economic substance is a wager. Courts that have looked past the regulatory classification to the economic substance have sided with the states, and I have seen nothing in the Supreme Court's recent preemption jurisprudence to suggest the current bench will be hostile to that analysis.

The Robinhood-OG.com deal, announced Tuesday, adds a layer of complexity that the legal commentary has mostly missed. Robinhood is now routing retail event contracts through OG.com's CFTC-regulated infrastructure rather than Kalshi's, at a valuation of five billion dollars for the spun-off platform. That structure was almost certainly designed with the litigation environment in mind — distributing regulatory exposure across a second exchange rather than concentrating it in the platform that is currently named in three state lawsuits. What it does not do is change the underlying legal question. The federal preemption argument is the same whether the contract clears through Kalshi or OG.com. A Supreme Court ruling that goes against the platforms applies to both.

I am adjusting for my own tendency to weight the downside scenario, and I am doing so explicitly: the platforms have a genuine constitutional argument and they have chosen the right venue to make it. The Supreme Court could accept the CFTC's jurisdictional claim and resolve this in the industry's favor. I think that outcome is less probable than the current market on this question implies. The states have the better economic-substance argument, the better analogy to prior preemption cases, and a political environment in which protecting state tax revenue from federal override is not a difficult position to defend.