States and tribal nations press the Supreme Court to rule on sports prediction contracts

Prediction market providers operate under designated contract market licenses from the CFTC ^[12]. For a sports book, the value of that license depends on whether a CFTC listing overrides state gambling law. Dodd's brief says it does not. "Nor is the CEA's grant of 'exclusive jurisdiction' to the CFTC an express preemption provision immunizing every contract listed on a DCM from otherwise applicable state and tribal law," the brief said. "Rather, it identifies the CFTC as the federal regulator of covered financial instruments." ^[7]

Under the preemption question sits the swap question. Dodd's brief chose parlays, a popular sports product according to CoinDesk, and said they "do not facilitate hedging or price discovery" ^[8]. "Nor are they 'associated with' the type of 'potential financial, economic, or commercial consequences' required to qualify as swaps under the CEA," the brief said ^[9]. Dodd's name is on the 2010 law in dispute, and his brief said it was never meant to let the CFTC usurp the states' power to regulate gambling ^[10]. Gensler helped write the rules implementing that law. He made the same preemption argument here, as he has in an appellate case ^[11].

Count filers and courts and the states are ahead. Thirty-nine states plus D.C. put 40 state-level governments on the briefs ^[16], next to 145 tribal nations ^[3], and most of the briefs filed last week asked the Court to side with the states ^[6]. The CFTC has the Third Circuit ^[5] and, since Friday, a rule of its own in force ^[13].

In its Friday filings the CFTC left casino-style products outside the swap definition ^[14], so the agency now defends only the event contract, with sports, political, cultural and weather events named inside it. CoinDesk's account does not say which of the two documents carries the sports language ^[13]. For an operator, that decides whether sports sits inside a binding federal definition today or only inside a proposal.

A denial of review ^[1] would leave the split in place. The legal status of a sports contract would then depend on the circuit, and the CFTC's rule would be the only federal text on the point. A grant ending in a win for the states would make sports contracts gambling products licensed state by state, and the gap between state gambling rules and DCM oversight that the NFL complained of ^[12] would become the operating model. A win for the CFTC would carry the Third Circuit's reading ^[5] nationwide.

We think the states have the stronger hand on parlays in particular. A multi-game parlay is the product least able to pass the hedging and price-discovery test in Dodd's brief ^[8], and the casino-style carve-out ^[14] shows the agency itself accepts a line between swaps and gambling. The case against that view is that the one appellate court to back the CFTC did so on sports directly ^[5], and a rule in force ^[13] puts a federal definition on the record that no amicus brief can supply. A grant of review that ends in a ruling for the CFTC would prove us wrong. Until the Court acts, the same sports contract on the same federal license gets the CFTC's answer in one circuit and the states' answer in two ^[4].