Federal appeals courts prepare to split on major legal question

Third Circuit ruling covers one appellate court as eight more prepare to diverge

Joe Webster said it plainly during the Indian Gaming Association's webinar on Wednesday: roughly 85% of the decisions across eighty state and federal cases have gone against prediction markets. The Third Circuit's 2-1 ruling in May, the one Kalshi has been citing as its foundational appellate win, is currently the only federal appellate opinion on record in a state-initiated challenge. Four circuits are now briefed and waiting.

That arithmetic matters more than the win-loss ratio suggests. The Third Circuit majority held that sports event contracts are swaps under exclusive CFTC jurisdiction. Judge Jane Richards Roth, dissenting, wrote that the contracts are indistinguishable from traditional sports betting. One appellate court, two readings of the same instrument. When the Fourth, Sixth, and Ninth Circuits add their answers, the legal surface area of this dispute will be large enough to compel Supreme Court review even if the high court would otherwise prefer to wait.

Webster expects New Jersey to petition for certiorari by September 3. Whether the Court takes that case or waits for the circuit split to fully develop is genuinely open — but Webster's read, shared on the record, is that there is reason to think they might. I agree with that read, and I think the consensus is pricing it wrong in the other direction. A 2-1 decision with a substantive dissent, in a circuit that does not include the states generating the most aggressive enforcement, is a thin foundation for an industry treating federal preemption as settled law. The dissent in the Third Circuit is not noise. It is a roadmap for the next court that wants to rule differently.

The cases in Utah, Washington, New York, and Michigan that Webster flagged as significant tribal victories are the more important signal for where this goes. Tribal operators have a specific and durable interest: the Indian Gaming Regulatory Act built an entire economic framework on the premise that gaming on tribal land stays outside federal commodity law. Prediction market companies are not arguing against that framework directly — they are arguing that their contracts fall outside gaming law entirely. If even one appellate court accepts the Roth dissent's framing, the Third Circuit majority becomes a minority position, and the Supreme Court has no choice but to take the case.

I have watched regulatory preemption arguments run for years in other industries before the Court finally drew the line. The companies that treated early appellate wins as durable protection tended to build product and distribution on top of that assumption. When the line moved, the correction was not gradual.