The fast-evolving world of prediction markets is at the center of several high-stakes legal and regulatory battles, as discussed in the latest episode of Prediction News Update. Senior political reporter Chris Gerlacher sat down with appellate sports betting lawyer Daniel Wallach to unpack the latest developments, including New Jersey’s Third Circuit appeal and the confirmation hearing for CFTC nominee Brian Quintenz. Watch the full episode here:
New Jersey’s appeal: Defining swaps
Wallach dissected New Jersey’s opening brief in its expedited Third Circuit appeal, following its loss at the lower court on a motion for preliminary injunction. The state’s brief, Wallach noted, focused heavily on the definition of a “swap” under the Commodity Exchange Act (CEA) and the scope of the CFTC’s exclusive jurisdiction.
“The brief was heavily devoted to the issue of what is and what is not a swap within the context of the main argument over preemption,” Wallach explained. “What did Congress intend when it created exclusive jurisdiction for the CFTC and gave it authority over swap contracts?”
New Jersey used hypotheticals to point out the absurdity in Kalshi’s broad definition of swaps taken to the extreme in terms of what constitutes economic consequence. But Wallach pointed out a strategic omission:
“They didn’t touch upon any of the preliminary injunction elements. They focused too heavily on the preemption issue and the issue of what is meant by a swap rather than try to nullify any of the four required elements of a preliminary injunction…I thought that New Jersey left a golden opportunity on the cutting room floor.”
Wallach expects a flurry of amicus briefs from commercial casinos and Native American tribes that could serve to fill some of the gaps in New Jersey’s arguments.
Tribal gaming and CFTC jurisdiction: Quintenz’s confirmation hearing
The conversation then turned to the confirmation hearing for Brian Quintenz, President Trump’s nominee to lead the CFTC. Lawmakers pressed Quintenz on the impact of event contracts on tribal gaming exclusivity, especially in California.
“Adam Schiff is a California legislator and obviously he’s well positioned to articulate the impact this is going to have on Native American tribes,” Wallach said. “It’s not just gaming exclusivity that tribes enjoy…they have exclusivity over sports gambling on their Native American reservations.”
Quintenz responded by suggesting tribes could apply to become designated contract markets (DCMs) themselves, but Wallach called this a “non-realistic alternative.”
“That process takes one to two years to consummate…It’s almost akin to getting licensed as a gambling company. You’ve got to submit detailed applications, there’s a thorough review by the agency, a minimum of 180 days…The option to join them isn’t really there for the Native American tribes.”
Wallach predicted that tribes and other stakeholders will turn to the courts, not the CFTC, to defend their interests:
“You better believe that the Native American tribal groups are going to end up filing court briefs either as amicus curiae in the Third Circuit US Court of Appeals and in federal courts around the country. This issue will ultimately be settled not by Brian Quintenz but by either Congress or the courts.”
Quintenz’s regulatory philosophy
Wallach also commented on Quintenz’s broad view of the CEA and CFTC’s purpose, as articulated during the hearing:
“To him it is clear the purpose of the CEA and the CFTC is to support derivatives markets that provide for hedging risk, risk management, price discovery, and price dissemination. It’s a very broad definition and innovation came up over and over again.”
Looking ahead: What’s next for prediction market regulation?
With multiple ongoing court cases and a new CFTC chair on the horizon, Wallach sees the federal judiciary as the immediate battleground for prediction market regulation:
“There are live controversies before those courts right now…The federal courts in at least four different jurisdictions—three trial level courts and one appeals court—have an ongoing live controversy at which these issues can be resolved with some level of clarity and finality.”
As the industry awaits key rulings and regulatory decisions, all eyes are on the courts and the CFTC for the next chapter in the future of prediction markets.
