Prediction markets are increasingly at the center of a significant legal battle over whether sports-related contracts offered by platforms such as Kalshi may be regulated exclusively by the federal government or remain subject to state gambling laws.

New Jersey recently asked the U.S. Supreme Court to resolve the issue, following conflicting decisions in the federal appellate courts. In April, the U.S. Court of Appeals for the Third Circuit ruled that New Jersey’s sports-gambling laws were likely preempted by federal law in connection with Kalshi’s prediction-market contracts. More recently, the U.S. Court of Appeals for the Ninth Circuit reached the opposite conclusion, holding that Nevada could regulate Kalshi’s sports contracts. New Jersey’s petition argues that the split requires Supreme Court review.

The dispute centers on whether sports-related prediction contracts qualify as financial “swaps” subject to the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), or whether states retain authority to regulate them as gambling. The outcome could have significant implications for the rapidly expanding prediction-market industry and the regulatory authority of states.

Howard A. Fischer, a partner at Moses Singer and former SEC prosecutor, noted that the Supreme Court may want to see how the emerging industry develops before taking up the issue.

“I think, ultimately, the Supreme Court will probably want to see a little bit more of the social impact of this.”

Fischer also emphasized the practical considerations surrounding regulation, observing that states may be better positioned to devote personnel and resources to overseeing prediction markets than a centralized federal regulator.

“Rather than have dedicated departments in every state with 10, 20, 30 or more people, you’re going to have one, or two, maybe, people at the federal level who may or may not be former employees of the prediction markets.”

The case comes as states, federal regulators, prediction-market operators and the gaming industry continue to debate the appropriate regulatory framework for these emerging platforms. New Jersey’s petition notes that litigation over prediction markets has spread across numerous states, underscoring the national significance of the issue.