Sports Markets Are Heating Up
Part X (Finale): The closing bell rings, but the match isn’t over
The sports markets haven’t cooled—but the day of reckoning may be just around the corner; that is if the Supreme Court decides to take up the case and follow the law to its natural conclusion.
With Kalshi’s opening brief now filed in the Fourth Circuit and Judge Abelson’s Maryland opinion under the microscope, we close this ten-part series with an even better understanding of where the battle lines are being drawn.
From our foundational claim that DFS isn’t a game, to our deep dives into tribal gaming, federal preemption, and the CFTC’s jurisdictional reach, we’ve tracked the legal scaffolding beneath the sports prediction economy. One way or another, everything comes back to one defining question: Where does the law draw the line between state and federal jurisdiction?
This finale unpacks Judge Abelson’s (Maryland) remaining reasons (#3–#8) and revisits the definitional fault line at the heart of the debate: Is this gambling, or is this permissible futures trading? The answers don’t just shape Maryland’s outcome (the case is appealed to the 4th Circuit)—it sets the tone for how courts, lawmakers and regulators will treat sports contracts going forward and how prediction markets and sports betting platforms will position themselves.
Here are a few quick hits before we dive in:
→ NHL inks deals with Kalshi & Polymarket.
→ DraftKings acquires predictions platform Railbird.
→ Kalshi files its opening brief in the 4th Circuit case (Maryland) (PDF)
Now, back to the District Court opinion in Maryland (PDF)—our final installment in this series. It’s been a long ride so here’s a rapid-fire recap of where we’ve been:
Part I: We argued that daily fantasy sports (DFS) isn’t a game. Once the legal system catches up, DFS will be treated as a sports event contract and/or swap. Our prediction: DFS and sports event contracts will reach the Supreme Court together.
Part II: We examined tribal gaming vs. prediction markets, concluding that the IGRA won’t carry the tribes far—but the Lanham Act might.
Part III: Kalshi stumbles in Maryland. We mapped the parties’ positions and forecasted a Supreme Court showdown.
Part IV: Maryland struck the match. The fuse is burning. We argued this decision could mark the beginning of the end for sports betting as we know it.
Part V: We challenged the Maryland decision’s federalism logic. States can regulate games and enforce fraud-related laws in connection with commodity futures trading—but they do not have the power to decide which futures contracts constitute gambling. That’s CFTC territory.
Part VI: We parsed the state law prong of the special rule. Kalshi’s interpretation—that legality hinges on the underlying event, not the contract—is the better statutory reading.
Part VII: We zoomed out. From courtrooms to boardrooms, we captured the moment as prediction markets surged into mainstream finance.
Part VIII: We distilled the preemption puzzle into three questions:
Is sports a commodity? (Yes)
Can the CFTC allow it? (No)
Is there room for states? (No)
Said succinctly, there can be no sports gambling on a CFTC-regulated exchange, and as inconvenient as it may be, none at all in any state, on any platform.
Part IX: Kalshi goes global, courts go local. We covered Judge Gordon’s reversal in Nevada (reversing himself) and returned to Maryland for Reason #2.
Now, in this finale, we tackle Judge Abelson’s remaining reasons (#3-#8). Let’s start:
Reason #3: The Savings Clause and the Presumption Against Preemption
Judge Abelson argues that ambiguity in the savings clause cuts against field preemption.
Third, although the savings clause in the exclusive-jurisdiction provision cuts both ways as discussed above, given the presumption against preemption, its ambiguity means that on balance it cuts against a finding of field preemption.
We disagree. As we laid out in Part V, the CEA allows for complementary fraud-related state laws to do some of the work—but does not give the states the authority to regulate the trading of commodity futures contracts, nor determine which futures contracts constitute gambling. That’s federal jurisdiction, as codified in the 1974 Act. It’s right there in the title:
An Act to amend the Commodity Exchange Act to strengthen the regulation of futures trading, to bring all agricultural and other commodities traded on exchanges under regulation, and for other purposes. (emphasis added)
Three key phrases tell the story:
“All” commodities–not some, not many;
“Agricultural and other” commodities–acknowledging the shift toward financial and other commodities1; and
“Bring… under regulation”--centralizing oversight, not fragmenting it.
The real issue here is definitional. The whole debate is largely about field preemption, so the threshold question, also brought up at oral argument (MP3) in the 3rd Circuit is: What is the field? If it’s gambling, states have a stronger case. If it’s futures trading, they don’t. That brings us to:
Reason #4: States’ Interest in Regulating Gambling
Fourth, as the Supreme Court has long recognized, states have strong interests in regulating gambling… It is highly unlikely that Congress would have overridden state gambling laws without at least some indication in the text and legislative history that it intended to do so.
Yet, none of the cases Judge Abelson cites support the notion that the states have jurisdiction over all forms of gambling:
WV Ass’n of Club Owners & Fraternal Servs., Inc. v. Musgrave: Video lotteries
Ah Sin v. Wittman: Cards and dice
Greater New Orleans Broad. Ass’n, Inc. v. United States: Casino gambling
We covered this extensively in Part V, but the critical insight is that states have jurisdiction over games, therefore gambling games. They don’t have jurisdiction over gambling that might happen on futures markets.
What about Murphy v. NCAA though? Let’s break it down:
Did Murphy legalize sports gambling? No.
Did it allow states to legalize it? Not exactly.2
Did it strike PASPA on anticommandeering grounds? Yes.
The Supreme Court did strike PASPA on anticommandeering grounds; our opinion is that it did not legalize, nor allow the states to legalize sports gambling no matter what the popular opinion holds. PASPA was one of the federal prohibitions against sports gambling, but not the only one. In fact, the NYT opinion piece mentioned in footnote 2 recognized that nuance:
In 2018, the Supreme Court removed a major roadblock by allowing states to legalize sports gambling. (emphasis added).
PASPA was one roadblock, Dodd-Frank is another, and arguably, an even more entrenched one. That was the central point we made in our amicus brief (PDF) and it wasn’t even the first time we’ve tried to get the Supreme Court’s attention. The Supreme Court didn’t get there–yet. Will the third time be the charm?
Reason #5: Limits of Preemptive Intent
Fifth, where courts have carefully focused on the scope of Congress’s preemptive intent when enacting the exclusive-jurisdiction provision, they have held that that intent had limits.
We agree: Preemption does not necessarily reach fraud-related claims associated with commodity futures contracts. But sports event contracts are about market regulation. This is precisely the distinction that the Effex opinion (cited by Judge Abelson) makes:
Applying this determination, we decided that common law claims against brokers for breach of fiduciary duty could go forward… With this background in mind, we explained that the claims against brokers had “little or no bearing upon the actual operation of the commodity futures markets” and that “[o]nly in the context of market regulation does the need arise for uniform legal rules.”
Reason #6: Historical Context of Federal Sports Betting Laws
Sixth, when Congress enacted the exclusive-jurisdiction provision in 1974 as part of the Commodity Future Trading Commission Act, and when it expanded the provision to include swaps as part of the Dodd-Frank Act, sports betting constituted a federal crime unless expressly permitted under state law… Therefore, when Congress enacted and amended the CEA, it was highly unlikely to have intended to override state laws that regulate sports betting such as Maryland’s gaming laws, because at those times it was already largely illegal federally to engage in sports gambling (under either the Wire Act in 1974 or PASPA in 2010).
Why is it highly unlikely that Congress wanted to override all state laws related to the trading of commodity futures? As mentioned earlier, that’s precisely what the title of the 1974 Act indicated.
As for the state gaming laws… It’s not just highly unlikely that Congress intended to override Maryland’s sports betting laws with Dodd-Frank, it’s impossible: Those laws were put in place in 2021, post-Murphy. More broadly, Congress didn’t override much in 1974, 2000, or 2010 because state-regulated sports betting was rare, but that’s not evidence of congressional deference–it’s evidence of federal supremacy. It was actually the States that encroached into federal territory later, exploiting the CFTC’s inaction after Murphy was decided.
Reason #7: Kalshi’s Argument and Other Federal Laws
Seventh, Kalshi’s argument necessarily has consequences with respect to other federal laws that further confirm the implausibility of its field preemption theory. Interpreting the CEA to preempt state gambling laws when wagers are conducted on a DCM would necessarily mean that the CEA impliedly (albeit partially) overrides the Indian Gaming Regulatory Act, 25 U.S.C. § 2701 et seq. (“IGRA”), and § 1084 of the Wire Act, 18 U.S.C. § 1084(a)-(b).
Let’s be clear: Interpreting the CEA to preempt state gambling laws doesn’t mean it overrides the Wire Act or IGRA.
Let’s start with the Wire Act. The special rule in the CEA doesn’t contradict the Wire Act–it supplements it. It reinforces the idea that “gaming” contracts may be contrary to public interest; let’s also not forget that the CFTC’s regulations go even further and prohibit them.
The Wire Act, PASPA and Dodd-Frank worked in unison. PASPA may be gone, but the Wire Act and Dodd-Frank still work in tandem. Sports gambling is still prohibited–on any platform.
Where does Judge Abelson’s thinking fail? It appears that it fails because Judge Abelson doesn’t distinguish between jurisdiction and regulation. Those are two different questions! The first question is who has jurisdiction: State or federal authorities? The second question, after jurisdiction is established, is whether the activity in question will be regulated or prohibited. Judge Abelson seems to assume that sports event contracts should be regulated either at the state level or the federal level (or maybe even both), but does not consider the possibility that they may be prohibited in the first place. And once that possibility is acknowledged, the tension between the CEA and the Wire act goes away completely.
What about IGRA? That’s about gaming, not gambling. Sports gambling isn’t even mentioned in the statute. We don’t believe there is a legitimate repeal argument there. So that tension goes away not because CEA and IGRA produce contradicting results, but rather, because IGRA doesn’t even reach sports gambling in the first place.
The real shift isn’t in the law–it’s in the government’s posture. Jay Cohen went to prison for offering “sports futures.” The legal basis that took away his freedom? The Wire Act. The law hasn’t changed; the Wire Act continues to persist, albeit quietly. The product hasn’t changed. But now DraftKings is on the verge of offering sports event contracts through a federally regulated exchange and they wouldn’t even hire Jay Cohen because he didn’t have enough experience (even though he arguably invented the product!)? Make that make sense.
Reason #8: Legislative History and the Swap Question
Eighth, the limited legislative history that exists from 2010 that bears on the scope of Congress’s preemptive intent cuts against preemption… To be sure, those statements bear most directly on whether the event contracts at issue constitute swaps within the meaning of the CEA—which this Court does not decide. And isolated statements by particular legislators have limited evidentiary value when it comes to the meaning of a statute… But those statements also reflect concern about “gambling” occurring on DCMs.
Three important points worth touching on:
Congress’s Concern Was Real
Former Senator Lincoln’s recent 180 notwithstanding, the record reflects a clear congressional concern about gambling through futures markets. That sports event contracts were the only examples raised in the colloquy doesn’t undermine preemption–it underscores it. If Congress didn’t view sports as a commodity, the issue wouldn’t have surfaced at all. The specificity of the concern affirms CFTC jurisdiction, not weakens it.
The Concern was Platform-Agnostic
Judge Abelson wrote: “But those statements also reflect concern about ‘gambling’ occurring on DCMs.” But the reference to DCMs is nowhere to be found in the record. The closest it comes is this excerpt from the colloquy by Senator Lincoln:
Chairman DODD and I maintained this provision in the conference report to assure that the Commission has the power to prevent the creation of futures and swaps markets that would allow citizens to profit from devastating events and also prevent gambling through futures markets.
Prediction markets are futures markets. Even if the transactions are taking place off-exchange, they are still futures markets.
Brian Quintenz believes:
All events are commodities, which means all contracts on future events are commodity futures contracts, which means all future event contracts need to be traded on a regulated and registered futures exchange.
He also believes that there are two consequences if an event contract is deemed to be contrary to public interest:
i) That contract is banned from trading on any registered futures exchange; and
ii) The contract cannot trade anywhere else either since it is still a commodity futures contract and, if traded off of an exchange would be illegal.
Yes, those are direct quotes from someone who, until recently, was the presumptive candidate to lead the CFTC. And he is right, not because he is a former CFTC Commissioner, but because there is a solid record of Congress repeatedly highlighting the exchange-trading requirement. Consider this line from the paper:
The CFTC has consistently interpreted the CEA to prohibit all off-exchange futures contracts.
As well as this one:
Courts and commentators have construed the CEA similarly to require exchange trading of all futures contracts.
How does a state, or a prediction market reconcile all of this in front of the Supreme Court?
The Swap Determination That is Missing
Here’s the kicker: Judge Abelson sidesteps the core question–whether sports event contracts are swaps. That’s not a minor omission. It’s central to determining whether the CFTC has exclusive jurisdiction. Without answering that, the preemption analysis is simply incomplete.
Also worth noting, this is the definition of swap execution facility in the statute:
(50)Swap execution facility
The term “swap execution facility” means a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility, that—
(A) facilitates the execution of swaps between persons; and
(B) is not a designated contract market.
Including any trading facility… facilitates the execution of swaps.. and, is not a designated contract market.
We believe there really is only one way to read this. Yet, here we are with Judge Abelson narrowing the concern to trading on DCMs (not in the legislative record), and deciding the issue at bar without even addressing whether sports event contracts are swaps. This alone, we believe, is grounds for a reversal.
Of course, there is a very real incentive issue here. Who will bring this up? Kalshi won’t because their argument is that the CEA does not reach off-exchange trading and federal and state regulation of sports event contracts can coexist. Certainly not the states, as it will become painfully obvious that their entire existence had no legal basis. Critically, if Brian Quintenz is right (and he is), that conclusion does not even depend on whether sports events contracts are prohibited or not. If they are prohibited, there can not be state-regulated sports gambling. If they are not, there still can’t be state-regulated sports gambling.
So, that leaves two options: Either a state that has not “legalized” gambling will make the argument, or amici (us or others) will be heard.
Final Thoughts
This wraps our Sports Markets Are Heating Up series.
Now that the heating up part is over, one question lingers: Is the day of reckoning just around the corner for sports gambling?
Legally, that’s where the trail leads. But with so much money in play, the outcome is far from certain. It is probable that the Supreme Court will hear this matter. We also believe it is probable that the Supreme Court will recognize that Congress, at this time, is not supportive of sports gambling (as evidenced by the laws on the books) and will rule accordingly.
What if we are wrong? What if the Supreme Court doesn’t address the issue, or it does, but decides to greenlight some form of sports gambling?
Two alternative paths remain that might force Congress’s hand, one way or another. One is a possible 2008-style economic crisis that would identify prediction markets as the culprit, or a sports gambling crisis that might just be in the making (is one simmering already?). America has a solid record of reacting strongly to crises, and if that happens, the tide could change pretty quickly.
Let’s also not forget the AI wildcard. As their reasoning models grow more sophisticated, weak legal arguments and contradictions won’t just be debated–they’ll be modeled, stress-tested and exposed. When that happens, the tightrope that sports gambling is walking may unravel.
The drafters in 1974 arguably did not have sports in mind yet, but the drafters in 2000 did (CFMA), and the drafters in 2010 (Dodd-Frank) reinforced that stance even further.
Consider the position taken in this New York Times opinion piece and also by Judge Abelson in his Maryland opinion (“[Post-Murphy], states were permitted to legalize sports wagering within their boundaries.”)