The International Association of Gaming Regulators (IAGR) and the North American Gaming Regulators Association (NAGRA) asked the U.S. Supreme Court last week to hear New Jersey‘s case against Kalshi.
In a joint amicus brief filed Oct. 2 in Flaherty v. KalshiEX, the groups argue that the Commodity Exchange Act (CEA) does not let a sports wager escape state gambling law just because it is listed as an event contract on a Commodity Futures Trading Commission-registered exchange.
The regulators said the conflict itself is the most urgent problem. The Third Circuit Court of Appeals ruled for Kalshi in its case against New Jersey. Meanwhile, the Sixth and Ninth Circuits have sided with the states.
“The same product, offered by the same company under the same federal registration, is presently shielded from state regulatory authority within the Third Circuit and subject to it within the Sixth and Ninth,” the brief states.
The filing adds more regulatory weight behind New Jersey’s petition, which was filed in September. It is the second amicus brief supporting the state. The National Council of Legislators from Gaming States filed the first on Sept. 22.
“Regulators need clarity about their authority to enforce proven safeguards and the limits their jurisdictions have placed on gambling,” IAGR President Ben Haden said in a release.
The Court now has the same message from both sides of state gaming policy. Lawmakers who write the rules and the regulators who enforce them both want the Court to say where federal derivatives law ends and state gambling authority begins.
IAGR, NAGRA make their case
IAGR and NAGRA “agree with Petitioners that the Sixth and Ninth Circuits have the better view.”
“IAGR is concerned that sports wagering offered through prediction markets leaves consumers without the protection gaming regulators provide pursuant to public policy established in their jurisdiction,” Haden said. “Our brief challenges the claim that offering a sports wager as an event contract exempts it from state gambling laws.
“Without the protection and oversight provided by gaming regulators, we are highlighting the risks of underage players being able to access gambling freely, problem gamblers being left without proven harm-prevention tools — or worse, being targeted by operators — and the integrity of sport being put at risk.”
Why do gaming regulators care about prediction markets?
Most of the brief explains what regulators actually do and what they lose if exchange-listed contracts fall outside their reach.
That covers:
- Licensing and suitability reviews
- Approving events and wager types
- Integrity monitoring
- Enforcing age limits
- Self-exclusion
- Prohibited-participant rules
- Regulator access to records
- Enforcement against unlicensed operators
The brief draws on rules from Ohio, Illinois, Massachusetts, Tennessee, Nevada, New Jersey and Colorado.
The groups also argue that integrity monitoring depends on seeing the whole market. Wagering that moves outside that system is activity regulators “can no longer use to detect manipulation of the underlying events.”
Tribal gaming is a large part of the filing, as NAGRA members include tribal regulators. The brief points out that sports betting is Class III gaming under the Indian Gaming Regulatory Act (IGRA), and that states such as Maine and Michigan have set aside some or all of their mobile market for tribes. If the same product can be sold to the same patrons outside the compact, the brief argues, tribal regulators “cannot enforce the terms on which the tribes’ rights were negotiated.”
Widening court split in Kalshi cases
The Third Circuit’s April ruling is still the only federal appellate win for Kalshi. That panel found the contracts are likely swaps and that federal law likely preempts New Jersey’s sports-wagering laws.
In August, the Ninth Circuit ruled that Nevada’s gaming laws apply to sports event contracts on prediction markets.
In September, that court also ruled for tribes seeking to prevent sports event contracts on tribal land.
Also in September, the Sixth Circuit cleared Ohio and Tennessee to enforce their gambling laws against sports event contracts. It also held that the CEA would not preempt those laws even if the contracts were swaps.
The issue is also awaiting a decision from the Fourth Circuit, where Maryland‘s case was argued in May and is still pending. New York’s appeal in the Second Circuit is also pending.
The brief argues that more circuit rulings “will not produce uniformity.” Instead, they will add to the number of jurisdictions operating under conflicting rules.
New Jersey’s petition is not the only one pending. Robinhood and Crypto.com have also asked the Court to review its Ninth Circuit loss to Nevada. Kalshi has not filed a petition of its own, rather it asked the full Ninth Circuit to rehear the Nevada case.
The Court began its new term Monday and did not list prediction markets among its first cases.
