---
type: source
title: "Prediction Markets at a Crossroads: The Continued Jurisdictional Battle Over Event Contracts — comprehensive court split analysis"
author: "Holland & Knight LLP"
url: https://www.hklaw.com/en/insights/publications/2026/02/prediction-markets-at-a-crossroads-the-continued-jurisdictional-battle
date: 2026-02-26
domain: internet-finance
secondary_domains: []
format: essay
status: enrichment
priority: high
triage_tag: claim
tags: [prediction-markets, regulation, jurisdiction, preemption, CFTC, gaming, futarchy, supreme-court, federal-preemption]
flagged_for_leo: ["Cross-domain: the prediction market classification question determines whether ALL market-based governance (futarchy, decision markets) can operate at scale in the US"]
processed_by: rio
processed_date: 2026-03-18
enrichments_applied: ["polymarket-achieved-us-regulatory-legitimacy-through-qcx-acquisition-establishing-prediction-markets-as-cftc-regulated-derivatives.md", "Polymarket vindicated prediction markets over polling in 2024 US election.md"]
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

Holland & Knight's February 2026 analysis provides the most comprehensive legal mapping of the prediction market jurisdictional battle. Key elements:

**The Core Question:** Are sports-related event contracts federally regulated derivatives subject to CFTC exclusivity, or state-regulated gambling subject to traditional police powers?

**Federal Preemption Argument (Kalshi/CFTC position):**
- Sports event contracts constitute "swaps" under CEA 7 U.S.C. § 1a(47) — statute's repeated use of "any" encompasses agreements dependent on "occurrence, nonoccurrence, or the extent of the occurrence" of an event
- CFTC has exclusive jurisdiction under 7 U.S.C. § 2(a)(1)(A)
- A sporting event's outcome qualifies as an uncertain occurrence
- Chair Selig: state enforcement is a "power grab"

**State Authority Argument:**
- 7 U.S.C. Section 7a-2(c)(5)(C)(i) gaming exclusion carves out sports contracts
- Traditional police powers predate the Constitution
- Anti-commandeering principles
- Clear-statement doctrine requirements
- Presumption against preemption in traditional state regulation areas

**The Full Court Split (with case citations):**

| Jurisdiction | Court | Date | Ruling | Rationale |
|---|---|---|---|---|
| Nevada (District) | U.S. District Court | Apr 2025 | For Kalshi | Preliminary injunction granted |
| Nevada (District) | U.S. District Court | Dec 2025 | Against Kalshi (reversed) | Sports contracts "closely resemble" sportsbook bets |
| Nevada (Circuit) | Ninth Circuit | Feb 2026 | Against Kalshi | Denied stay (one-sentence order) |
| New Jersey | U.S. District Court | Apr 2025 | For Kalshi | CEA likely preempts state enforcement |
| Massachusetts | Superior Court | Sept 2025 | Against Kalshi | Position "overly broad" |
| Massachusetts | Appeals Court | Feb 2026 | For Kalshi (stayed) | Expedited review ordered |
| Tennessee | U.S. District Court | Feb 19, 2026 | For Kalshi | Contracts are "swaps"; conflict preemption applies |
| Maryland | U.S. District Court | Aug 2025 | Against Kalshi | Congress didn't intend to displace state gambling authority |
| Ohio | U.S. District Court | Oct 2025 | TRO for Kalshi | Preliminary injunction pending |
| Connecticut | U.S. District Court | Dec 2025 | TRO for Kalshi | Preliminary injunction pending |
| New York | U.S. District Court | Oct 2025 | TRO for Kalshi | Preliminary injunction pending |

Case citations:
- *KalshiEx v. Hendrick*, No. 2:25-cv-00575 (D. Nev.); appeal No. 25-7516 (9th Cir.)
- *KalshiEx v. Flaherty*, No. 1:25-cv-02152 (D.N.J.); appeal No. 25-1922 (3rd Cir.)
- *KalshiEx v. Orgel*, No. 3:26-cv-00034 (M.D. Tenn.)
- *KalshiEx v. Martin*, No. 1:25-cv-01283 (D. Md.); appeal No. 25-1892 (4th Cir.)
- *Commonwealth v. KalshiEx*, No. 2584CV02525 (Mass. Super. Ct.)
- *KalshiEx v. Schuler*, No. 2:25-cv-01165 (S.D. Ohio)
- *KalshiEx v. Cafferelli*, No. 3:25-cv-02016 (D. Conn.)
- *KalshiEx v. Williams*, No. 1:25-cv-08846 (S.D.N.Y.)

**Conflict Preemption Standard (from Tennessee ruling):**
1. Impossibility of dual compliance: Kalshi cannot simultaneously satisfy federal impartial-access requirements and state-specific restrictions
2. Obstacle to federal objectives: State enforcement undermines CEA's objective of uniform derivatives market regulation

**The Path to SCOTUS:**
- Circuit split now emerging (Ninth Circuit vs. pending Third, Fourth Circuit)
- 50+ active cases across jurisdictions
- Conflicting judicial conclusions on identical legal questions
- Massachusetts case heading to state Supreme Judicial Court
- Fourth Circuit amicus briefs from 36+ states
- Post-Loper Light: courts conducting de novo textual analysis rather than deferring to CFTC

**Congressional Pressure:** 36+ senators urged CFTC to "abstain from intervening in pending litigation"

## Agent Notes
**Triage:** [CLAIM] — Multiple claim candidates here:
1. "The prediction market state-federal jurisdiction crisis will likely reach the Supreme Court because district courts have reached irreconcilable conclusions on whether event contracts are federally preempted derivatives or state-regulated gaming"
2. "The prediction market jurisdiction battle is primarily about sports contracts, but the preemption precedent will determine whether ALL event contracts — including futarchy governance markets — face state-level gaming regulation"
3. "Post-Loper Light de novo judicial review of agency classification increases uncertainty for CFTC's exclusive jurisdiction claim because courts no longer defer to agency interpretation"

**Why this matters:** This is THE regulatory risk for futarchy. If states win the right to classify event contracts as gaming, futarchy governance markets face 50-state licensing requirements. The entire programmable governance thesis depends on federal preemption being upheld — either through litigation or legislation.

**What surprised me:** The scale — 50+ active cases, not just the 3-4 I tracked in Session 2. Also: the Nevada reversal (judge who initially sided with Kalshi in April 2025 reversed himself in December 2025). And the post-Loper Light dynamic — courts are doing independent textual analysis rather than deferring to CFTC, which makes the outcome less predictable.

**KB connections:**
- Directly challenges Belief #6 (regulatory defensibility through decentralization) — even if a token isn't a security, the governance mechanism itself may face gaming classification
- Connects to [[Polymarket vindicated prediction markets over polling in 2024 US election]] — the very success of prediction markets triggered the state backlash
- Connects to [[futarchy-governed entities are structurally not securities]] — the securities question may be less important than the gaming classification question

**Extraction hints:** Focus on the structural distinction between sports prediction markets and governance/decision markets. The extractor should analyze whether futarchy markets (which resolve based on token price, not sporting events) would survive the "gaming" classification that states are using against sports contracts.

## Curator Notes
PRIMARY CONNECTION: [[futarchy is manipulation-resistant because attack attempts create profitable opportunities for arbitrageurs]] — but manipulation resistance doesn't matter if the mechanism is classified as gaming
WHY ARCHIVED: The most comprehensive legal mapping of the prediction market jurisdiction crisis, with case citations enabling claim-level specificity about the SCOTUS path


## Key Facts
- Nevada District Court granted preliminary injunction for Kalshi in April 2025, then reversed in December 2025 finding sports contracts 'closely resemble' sportsbook bets
- Ninth Circuit denied Kalshi's stay request in February 2026 with one-sentence order
- New Jersey District Court ruled in April 2025 that CEA likely preempts state enforcement (case No. 1:25-cv-02152)
- Tennessee District Court ruled February 19, 2026 that contracts are 'swaps' and conflict preemption applies (case No. 3:26-cv-00034)
- Maryland District Court ruled in August 2025 that Congress didn't intend to displace state gambling authority (case No. 1:25-cv-01283)
- Massachusetts Superior Court ruled in September 2025 that Kalshi's position was 'overly broad' (case No. 2584CV02525)
- Massachusetts Appeals Court reversed in February 2026 and ordered expedited review
- 36+ senators urged CFTC to abstain from intervening in pending litigation
- 36+ states filed amicus briefs in Fourth Circuit opposing federal preemption
- CFTC Chair Selig characterized state enforcement as a 'power grab'
- The conflict preemption standard requires: (1) impossibility of dual compliance and (2) obstacle to federal objectives
- 7 U.S.C. § 1a(47) defines swaps to include agreements dependent on 'occurrence, nonoccurrence, or the extent of the occurrence' of an event
- 7 U.S.C. Section 7a-2(c)(5)(C)(i) contains gaming exclusion carve-out that states cite for sports contracts
