On December 22, Nevada, Ohio, and a bipartisan group representing 37 states, along with the District of Columbia, submitted an amicus brief to the U.S. Court of Appeals for the Fourth Circuit. They are urging the court to dismiss claims suggesting that federal financial-market regulations provide a loophole for prediction-market operators to offer sports betting across the nation, circumventing state gaming laws. This legal battle, encapsulated in the case of KalshiEx LLC v. Martin, underscores a critical debate over the authority to regulate gambling—a power traditionally held by individual states.
The brief argues that Congress never intended to diminish state authority, which has long been responsible for regulating gambling to protect consumers. Instead, it maintains that federal oversight of derivatives was never meant to supplant existing state sports wagering frameworks. Nevada Attorney General Aaron D. Ford has been vocal on this issue, stating that Nevada, as a pioneer in sports wagering, possesses decades of experience in safeguarding consumers, ensuring the integrity of sporting events, and mitigating issues such as underage gambling, a sentiment echoed by Ohio Attorney General Dave Yost.
The core of the appeal is whether a federally regulated platform can offer “sports event contracts.” These contracts, resembling binary options, function similarly to traditional sports wagers but could bypass crucial state-level licensing, taxation, and responsible gambling regulations. The states warn that under Kalshi’s interpretation, state oversight of sports betting could be significantly weakened, leading to a landscape where such betting activities are largely unregulated.
Maryland officials, involved as respondents in this case, have received support from the coalition, which argues for the state’s right to enforce its gambling laws against unauthorized sports-related contracts. The coalition’s stance is that allowing unsanctioned sports betting products under the guise of prediction markets could erode the regulatory frameworks that states have meticulously developed over years.
This legal confrontation is emerging amidst heightened scrutiny of sports-related prediction products across various jurisdictions. In Connecticut, for example, regulators have issued cease-and-desist orders to companies like Kalshi, Robinhood Derivatives, and Crypto.com, asserting that only licensed entities may provide sports wagering services within the state. Concerns have been raised about the potential for underage access and other conflicts with state laws, signaling a broader regulatory concern that crosses state lines.
Federal regulators, too, have expressed unease with the rapid proliferation of sports event contracts. In February, Robinhood retracted Super Bowl-related event contracts following a request from the U.S. Commodity Futures Trading Commission (CFTC). The CFTC has voiced “serious concerns” over offering contracts that may not align with permissible standards, further complicating the landscape for operators.
The coalition’s appeal to the Fourth Circuit is not just about maintaining state autonomy but also about preserving a regulatory dichotomy where states govern sports betting and federal entities oversee financial derivatives. In this bifurcated regulatory environment, prediction markets represent a gray area that could blur these distinctions, potentially risking the consumer protections that states have fought to enforce.
The coalition warns industry players that without clear resolution, brands looking to engage with event contracts through integrations, promotional activities, or media partnerships should approach with caution. The category presents substantial compliance and reputational risks, especially in states where sports betting is tightly regulated and politically sensitive. The coalition’s ongoing efforts underscore a commitment to preserving the regulatory status quo: a system where states continue to license and supervise sports betting while federal oversight remains focused on its intended purpose—regulating the derivatives market.
This case highlights the tension between innovation and regulation in the rapidly evolving gaming and financial markets. While some argue that prediction markets can offer new opportunities for growth and engagement, others caution against undermining state-established frameworks that protect consumers and ensure fair play. As the legal proceedings unfold, the outcome could set a precedent, influencing not only the future of sports betting regulation but also the broader relationship between state and federal authority in managing emerging market sectors.
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