Now nearly forty state attorneys general are lining up against the prediction market industry’s central legal argument, and the Massachusetts Supreme Judicial Court appears inclined to agree with them.
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During oral arguments in Calci’s appeal, the justices asked whether the Dodd-Frank swap definition could override the state’s gambling law. This question is directly relevant to brokers and platforms considering predictive market integration.
The swap argument and its limits
Kalci’s defense is based on 2010 Dodd-Frank Actwhich expanded the definition of “swap” and placed event contracts under the exclusive federal jurisdiction of the Commodity Futures Trading Commission (CFTC). On this basis, Calci says Massachusetts has no authority to regulate or ban their contracts.
However, Chief Justice Scott L. Kafker responded directly. “If you want to gamble on a game, this is one way to do it, right?” he asked. “This seems to have a major aspect of sports gambling.”
Some judges acknowledged that Calci’s stock exchange structure – where users place odds against each other rather than against the house – is more similar to a financial market than a traditional sportsbook. This distinction does not appear to move the court toward Kalshi’s position.
State officials assert that in the absence of statewide consumer protections, a material regulatory gap exists regardless of how a product is classified under the Federal Derivatives Act.
Coordinated state response
Support a coalition of friends Massachusetts Nearly 40 state attorneys general straddle party lines. Their argument is clear and straightforward: if a product functions like betting, it should be licensed and taxed as gambling.
In New York, the tax rate is 51%. This alliance directly opposes the current Commodity Futures Trading Commission (CFTC), which under the Trump administration has defended its sole authority over Prediction markets.
The CFTC’s rulemaking on prediction markets attracted more than 1,500 public comments, including The submissions showed a clear divide. Financial companies and cryptocurrency investors, including Coinbase and Andreessen Horowitz, advocated for federal derivatives treatment, while gaming regulators across multiple states pushed for state-level gambling oversight.
What the ruling means for brokers and platforms
Kalshi’s victory will be confirmed That’s enough for youThe federal preemption argument allows brokers to offer event contracts within standard trading accounts without triggering state gambling license requirements.
A loss would give states a practical legal model for bypassing federal preemption. Companies looking to enter this space will face a country-by-country licensing and tax system — a cost structure that will likely price out all but the largest platforms.
This case is likely to be submitted for review by the US Supreme Court. Until this question is resolved, the industry’s reliance on the Federal Financial Derivatives Classification remains uncertain.
It depends on whether courts treat sporting event contracts as derivatives rather than bets — a position Massachusetts is not willing to take.
This article was written by Tanya Chipkova at www.financemagnates.com.
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