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The Supreme Court is likely to address who regulates sports-related prediction market contracts, Stanford Law professor emeritus Joe Grundfest said. The dispute turns on whether those event contracts qualify as federally regulated swaps or fall under state sports betting laws.
Grundfest discussed the competing legal frameworks in a Stanford Legal episode released Nov. 12, according to Stanford Law School. Platforms including Kalshi and Polymarket featured in the discussion.
Federal Swaps Rules or State Sports Betting Laws?
Grundfest said federal appeals courts are split over whether sports-related event contracts qualify as swaps. The discussion examines the Commodity Exchange Act and Dodd-Frank Act in that classification dispute.
If the contracts qualify as swaps under federal law, the Commodity Futures Trading Commission would regulate them. State regulation would then be preempted, according to the discussion.
States differ in their treatment of sports betting and prediction markets. That makes the classification central to determining which authorities set the rules.
The episode also highlighted different participation thresholds. It cited an age threshold of 18 for Kalshi, compared with a typical sports betting minimum of 21 in most states.
Prediction Market Trading Safeguards and Contract Restrictions
Prediction market contracts cover outcomes beyond sports, including elections and the timing of military operations. Grundfest discussed concerns about market manipulation and trading based on inside information or information obtained through misappropriation.
The discussion described differences in how platforms identify participants. Kalshi requires registration and is supposed to follow know-your-customer and anti-money-laundering rules, according to the episode.
Polymarket was described as technically offshore, with pseudonymous trades.
Grundfest also addressed gambling-related harm. “Gambling addiction is real,” he said during a discussion of proposition-style outcomes and gambling problems.
The episode noted that Kalshi prohibits certain contracts, including those involving wildfires.
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Source: As reported by Stanford Law School.
