IAGR and NAGRA ask Supreme Court to settle doubts over the regulation of prediction markets
The associations cite conflicting rulings in cases involving Kalshi.
Key Takeaways
- IAGR and NAGRA have filed a joint amicus brief asking the US Supreme Court to review whether the Commodity Exchange Act prevents states from regulating sports event contracts, backing New Jersey in its dispute with Kalshi.
- The associations cite conflicting appeals court rulings: the Third Circuit found Kalshi’s contracts were likely swaps under federal oversight, while the Sixth and Ninth Circuits found federal law doesn’t prevent states from enforcing their gambling laws.
- They say the uncertainty affects states’ ability to enforce age limits, self-exclusion, event approval and responsible gambling protections consistently.
US.- The International Association of Gaming Regulators (IAGR) and the North American Gaming Regulators Association (NAGRA) have asked the US Supreme Court to review whether federal commodities law prevents states from regulating sports event contracts offered through federally registered exchanges. The associations filed a joint amicus brief supporting New Jersey officials in their legal dispute with Kalshi.
The associations argue that the Supreme Court should resolve whether the Commodity Exchange Act, as amended by Dodd-Frank, pre-empts state gambling laws when sports wagers are offered through a CFTC-registered exchange. The associations pointed to different rulings from federal appeals courts. The Third Circuit said Kalshi’s sports contracts were likely swaps under federal oversight, while the Ninth and Sixth Circuits reached the opposite view, finding that Kalshi had not shown that its contracts were swaps and that federal law did not prevent New Jersey, Ohio or Tennessee from enforcing their gambling laws.
As a result, the same Kalshi contracts can face different rules depending on the state. Although the cases are still at an early stage, IAGR and NAGRA said the disagreement is already creating problems for regulators and licensed operators.
The brief also mentions the context of tribal gaming. Under the Indian Gaming Regulatory Act (IGRA), sports betting is classified as Class III gaming on tribal lands and is generally governed through tribal-state compacts that establish how regulation is shared between the two sovereign entities.
The associations note that some states have reserved part or all of their sports betting markets to tribes. Maine, for example, limits eligibility for mobile sports wagering licences to federally recognised tribes, while Michigan excludes internet sports betting conducted exclusively on Indian lands from its state framework. Nevada has also warned licensees that offering sports event contracts in a way that violates a tribal right established through a compact could result in disciplinary action.
The brief cites the Ninth Circuit’s September decision in the dispute of Blue Lake Rancheria against Kalshi, which extended the dispute beyond state gambling law and found that Kalshi’s sports event contracts could constitute Class III gaming for purposes of federal tribal gaming law. IAGR and NAGRA say this demonstrates that the conflict is not limited to one state statute or regulatory system.
The IAGR and NAGRA also pointed to implications related to state requirements covering age limits, self-exclusion, approved events and wagers, integrity monitoring and responsible gambling protections. They note that the Ohio Casino Control Commission says Kalshi offered sports contracts to customers aged 18 to 20, maintained a self-exclusion programme that did not meet Ohio requirements and offered bets on events that had not been approved by the state. The associations argue that resolving the federal question is necessary to determine whether states can enforce those safeguards.
The associations also stressed the potential impact on licensed operators, which must pay fees and taxes, undergo suitability reviews and comply with state requirements. They said regulators need clarity on whether licensed companies can partner with exchanges offering sports contracts without creating potential licensing or suitability issues.
Ohio vows to enforce gambling laws against Kalshi
Ohio Governor Mike DeWine has vowed to enforce state gaming laws against Kashi following the ruling by the US Sixth Circuit Court of Appeals on September 25. The position could force Kalshi to suspend certain event contracts in Ohio or face additional legal action if it does not comply with state requirements.
Circuit Judge Julia Smith Gibbons rejected Kalshi’s argument that its products were swaps regulated exclusively by the CFTC and ruled that the company had not demonstrated that its sports contracts meet the CEA’s definition of a swap because they are not linked to events with the type of financial, economic or commercial consequences contemplated by the law. As for federal preemption, the court said that even if Kalshi’s contracts were considered swaps, the CEA would not prevent Ohio or Tennessee from enforcing their gambling laws against the company. This ruling also applied to Tennessee.
