The line between sports betting and financial trading is becoming a major point of contention in the US gambling industry, and Pennsylvania is now part of the push to settle the debate. Attorney General Dave Sunday has joined a bipartisan coalition of attorneys general from 40 states urging the US Supreme Court to consider whether prediction-market operators should be subject to state gambling laws when offering contracts tied to sporting events.
The coalition is backing New Jersey’s petition for Supreme Court review of a federal appeals court ruling involving Kalshi, a prediction-market platform that expanded into sports-related contracts in 2025.
Why Prediction Markets Are Drawing Regulatory Attention
Unlike traditional sportsbooks, prediction-market platforms allow users to buy and sell contracts based on the outcomes of events. The legal question is whether sports-related contracts should be treated as financial derivatives regulated federally or as gambling products subject to state oversight.
Sunday and other attorneys general argue that the nature of the transaction matters more than the platform offering it. If a contract functions like a sports wager, they believe it should fall under the same state gambling laws that govern conventional sportsbooks.
A Legal Divide Could Reshape the Market
The dispute has become more complicated as federal courts have reached conflicting conclusions. For instance, in April, the US Court of Appeals for the Third Circuit, which covers Pennsylvania, ruled that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over Kalshi’s event contracts. The decision limits states’ ability to regulate the company’s operations under their gambling laws.
However, appeals courts in the Sixth and Ninth Circuits reached different conclusions in September, finding that states may regulate prediction-market contracts when they function as gambling.
These conflicting rulings have created an uneven regulatory landscape, leaving states uncertain about how far their gambling laws extend into the prediction-market sector.
What Pennsylvania Stands to Gain or Lose
Pennsylvania has already joined other states in challenging the expansion of sports-related prediction markets. Sunday’s office previously participated in an amicus brief alongside Ohio and other attorneys general in proceedings before the Third Circuit, as well as similar efforts involving other federal appeals courts.
The issue carries broader implications for Pennsylvania’s established online sports betting market. Licensed sportsbooks operate under state requirements, while prediction-market operators argue that their products fall within a federal regulatory framework.
A Supreme Court ruling supporting state authority could expose prediction-market platforms to additional licensing and compliance requirements. A decision favoring exclusive federal oversight could instead limit Pennsylvania’s ability to regulate sports-related contracts as conventional gambling products. Either outcome could influence how prediction markets compete with traditional sportsbooks and how regulators approach new betting products.
The Debate Is Far from Settled
The Supreme Court must first decide whether to hear New Jersey’s petition. Until then, the disagreement over federal jurisdiction and state gambling authority is likely to remain a central issue for regulators, prediction-market operators and the wider sports betting industry.
That debate is likely to continue as prediction markets expand and states seek clarity over the limits of their authority.
