Supreme Court Faces Growing Fight Over Prediction Market Event Contracts

The battle over event-based contracts has moved from the trading floor to the nation's highest courts, with Arizona, New Jersey, and major market players like Robinhood pressing their cases. At issue is whether the Commodity Exchange Act shields federally registered platforms from state gaming laws, or whether states keep the authority to regulate what they see as gambling.

The Fight Over Event Contracts Is Getting Bigger

Prediction markets have exploded in recent years. In 2025 alone, trading volume on CFTC-registered platforms exceeded $25 billion, and that figure has only grown since.

These markets allow participants to buy and sell contracts tied to real-world events, from sports outcomes to elections. Advocates say they provide valuable information and hedging tools. Critics argue they blur the line between financial instruments and gambling.

The question has become urgent as more than twenty states, and even one city, have threatened or commenced enforcement actions against designated contract markets and futures commission merchants. Market participants have filed dozens of lawsuits seeking clarity, while the CFTC itself has launched enforcement actions.

The result is a growing legal fight over who gets the final say. States say they have the power to enforce their gaming laws. Market operators argue that federal commodities law gives them protection from state-level restrictions.

Prediction Markets Are Drawing More Attention

The rapid growth of event contracts has put regulators and courts under pressure to define exactly what these products are.

For market operators, contracts linked to sports, elections, economic indicators, and other events can function as financial products. Traders can use them to speculate on outcomes or hedge against risks.

State regulators see some of these contracts differently, particularly when they involve sports. Their concern is that certain event contracts look much closer to gambling than traditional financial instruments.

That disagreement has created a difficult question for the courts. If an event contract falls under federal commodities law, can a state still prohibit it under its gaming laws?

The answer could determine how prediction markets operate across the country.

Arizona Is Relying on the Ninth Circuit Ruling

The Ninth Circuit's decision in KalshiEX, LLC v. Nevada marked a turning point.

The court rejected Kalshi's claim that sports-event contracts qualify as swaps or excluded commodities under the Commodity Exchange Act. It concluded that the contracts fall outside CFTC jurisdiction and that the federal statute does not preempt state gaming laws.

For Arizona, that ruling was decisive.

The state quickly moved to vacate a district court injunction that had barred enforcement of its gaming laws against platforms offering sports-event contracts. Officials argued that the Ninth Circuit's opinion is now the law of the circuit, and the question is settled: states can regulate or prohibit such contracts.

That position gives state regulators a powerful argument as they challenge prediction-market operators offering event contracts tied to sports.

The Third Circuit Has Complicated the Picture

Yet the Ninth Circuit is not alone in weighing in.

The Third Circuit's decision in Flaherty reached a different conclusion, finding preemption on field and conflict grounds. That split has created uncertainty across jurisdictions.

New Jersey has petitioned the Supreme Court to review Flaherty. Robinhood, meanwhile, has filed its own petition, arguing that its case presents the optimal vehicle for resolving the question.

Unlike Kalshi, Robinhood is a futures commission merchant rather than a designated contract market. It also preserved arguments across express, conflict, and field preemption.

Robinhood contends that only the Ninth Circuit case presents the complete array of preemption arguments, making it critical for the Court to consider.

The disagreement between the circuits makes the issue harder to resolve at the state level. A legal theory that works in one jurisdiction may face a very different interpretation elsewhere.

The CFTC Could Still Change the Debate

Complicating things further is the Commodity Futures Trading Commission's ongoing rulemaking.

The agency is preparing a rule that will clarify its understanding of swaps and event contracts deemed contrary to the public interest under its Special Rule.

That rule could have a major effect on the legal fight because courts are being asked to decide questions while the federal regulator is still developing its position.

Several filings suggest that at least one Ninth Circuit judge might have ruled differently had the proposed rule been in effect. Petitioners argue that the Supreme Court should wait for the CFTC to finalize its rule before granting certiorari.

They say the forthcoming regulation will provide significant clarity to courts, market participants, and state regulators.

Others counter that the question is too important to delay.

With billions of dollars at stake and a tidal wave of litigation already underway, they argue that the Supreme Court should act now to resolve the split between circuits.

Robinhood Wants the Supreme Court to Take Notice

Robinhood's petition emphasizes that granting certiorari now would be premature, but also insists that if the Court takes up New Jersey's petition or any other case, it should grant Robinhood's as well.

The company stresses that its case involves a futures commission merchant, broadening the range of interests and arguments before the Court.

That distinction is important because the dispute is not limited to the platforms that create and list event contracts. It also affects the intermediaries that help customers access and trade them.

Robinhood frames itself as a critical player in the debate, representing not just designated contract markets but also intermediaries that facilitate trading.

Its petition underscores the significance of the question for consumers, regulators, and the industry at large.

The Supreme Court Now Has a Choice

The Supreme Court faces a delicate choice.

It can wait for the CFTC's rulemaking, allowing the agency to clarify its position before weighing in. Or it can step in now, resolving the circuit split and providing immediate guidance to states and markets.

Either path carries risks.

Waiting could prolong uncertainty, leaving states and platforms locked in litigation. Acting now could mean deciding without the benefit of the CFTC's forthcoming rule, potentially constraining the agency's regulatory authority.

The Court therefore has to balance two competing concerns. One is the need for an immediate answer to an increasingly important legal dispute. The other is whether it makes sense to decide that dispute before the federal regulator finishes defining its own position.

What the Fight Could Mean for Prediction Markets

The fight over event contracts is more than a technical dispute.

It touches on federalism, market innovation, and consumer protection. The Ninth Circuit's ruling has already reshaped the landscape, empowering states like Arizona to enforce their gaming laws. The Third Circuit's divergence has deepened the conflict.

Robinhood's petition highlights the breadth of interests involved, while the CFTC's rulemaking adds another layer of uncertainty.

As the Supreme Court weighs its options, the industry waits.

Billions of dollars, dozens of lawsuits, and the future of prediction markets hang in the balance. Whether the Court acts now or later, its decision could define how event-based trading evolves in the United States.