Supreme Court inaction could leave prediction markets in legal limbo

The U.S. Supreme Court may decide not to review key legal questions in cases like Kalshi v. Assad and Kalshi v. Flaherty, which could reshape the landscape for prediction markets. While there are strong arguments for the Court to take up these cases, including a split among circuit courts and involvement from the DOJ and CFTC, procedural factors might delay or prevent a review. Linda Goldstein, a partner at CM Law, notes that the current rulings are preliminary, and the CFTC has ongoing rulemaking that could alter the legal framework.

If the Supreme Court declines to intervene, prediction market operators would face a fragmented legal environment. The CFTC and operators argue that federal law should create a uniform standard, but state gambling laws vary widely. Goldstein contends that this patchwork wouldn’t be as disruptive as feared, as the CFTC would still regulate designated contract markets while states handle gambling aspects.

In the short term, CFTC Chair Michael Selig would need to navigate ongoing litigation and rulemaking. Goldstein expects the CFTC to continue pressing in circuits where it hasn’t lost and to focus on rulemaking to clarify its stance. This could include defining event contracts as swaps and addressing consumer-protection concerns raised by states.

Long-term regulatory uncertainty looms, as the CFTC’s future actions will depend on leadership changes and political shifts. The agency’s current position is a product of recent leadership changes, highlighting how regulatory approaches can pivot with new administrations.