Prediction markets could seek sportsbook licences if Supreme Court rules against contracts

Attorney Josh Sterling told the NEXTPredict conference in New York on Friday that prediction market firms have options should the justices side against them on sports event contracts. Those options, the Milbank partner and former Commodity Futures Trading Commission official said, include applying for sportsbook licences, moving deeper into other financial products, or creating offerings that earn more. Covers reported his remarks. New Jersey wants the Supreme Court to settle the matter following the Third Circuit's April decision for Kalshi, but the justices have not yet granted review.

Sterling, a former head of the CFTC's market participants division, still holds that federal oversight of prediction markets is exclusive. Even so, he expects operators to be ready to adjust should the Supreme Court take a different view. In his account, the wait for a ruling, which could last months or years, gives firms time to grow their businesses and broaden their product lines while gaining public trust and name recognition.

Exchanges registered at the federal level, in the operators' view, may list sports contracts without obtaining separate state gaming approvals. Dozens of state regulators disagree, holding that such products amount to sports betting governed by their own statutes. Because prediction markets depend on liquidity that crosses state lines, limiting them jurisdiction by jurisdiction would likely shrink participation to the largest US states. Whether states would eventually grant licences to platforms they have fought for months, spending millions of dollars to restrict or ban them, is still an open question.

Friday's other panelists outlined goals reaching past the event contracts now at issue between states and exchanges. Brigitte Weyls, general counsel at Gemini Titan, cited exchanges moving into securities products and raised the subject of single-stock futures. Jovy Dedaj, who heads litigation at Kalshi, said the firm keeps building new products as it looks to courts and regulators for clearer rules. The panel nonetheless did not show that such diversification would make up for revenue lost if sports trading were restricted.

Sports make up roughly 80% of all trading volume, according to a Bank of America analysis shared at the conference, which also projected a $1.5 trillion total addressable market and identified Kalshi as the dominant player by market share.

Traditional sportsbook operators have prepared for either outcome in court. Flutter executives have framed prediction markets as a way to bring in customers where online sportsbooks are not legal, while expressing confidence that FanDuel's core wagering business would hold up if courts reduce the exchanges' regulatory edge. Jason Robins, DraftKings' CEO, has said his company stands to benefit either way, describing a "win-win" scenario, and he repeated that view on Thursday.

Adam Greenblatt, CEO of BetMGM, which does not run prediction markets, said this month that he anticipates the Supreme Court will side against the industry, contending its products go further than Congress meant to permit. People involved on both sides say no one can reliably forecast how the justices would rule, or whether they will accept the case and on what timetable.

Sterling dismissed the notion that a ruling in the industry's favour would do away with state gaming oversight. Casinos and sportsbooks, he said, would be able to keep running, although competition might push changes in states that cap the number of sportsbook licences. Whatever the outcome, he argued, the justices' decision would set the terms for the coming round of competition instead of automatically ending a business model.