The influence of an amicus brief depends entirely on the weight a court chooses to give it.
An amicus brief, a legal document filed by a party not directly involved in the case, can be treated as a game-changer, be ignored altogether or fall somewhere in between.
Odds are amicus briefs filed last Friday by the NFL, former U.S. Senator Christopher Dodd (the same “Dodd” of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010) and former CFTC Chairman Gary Gensler will nudge the U.S. Supreme Court toward agreeing to review whether federal law preempts states from regulating sports event contracts.
Each has an influential voice, especially regarding prediction markets and how key terms should be understood. They want the Supreme Court to review Kalshi v. Flaherty, a case in which the U.S. Court of Appeals for the 3rd Circuit held for Kalshi.
The 3rd Circuit’s opinion has drawn controversy. The court emphasizes the Commodity Exchange Act (CEA) gives the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction to oversee U.S. derivative markets. As a result, the 3rd Circuit stresses the CEA blocks state laws that directly interfere with swaps.
It’s not an overstatement to say the legality of sports prediction markets in America hinges on the word “swap” and whether sports bets placed on exchanges like Kalshi’s qualify.
Swaps are derivative contracts where the parties exchange payments or risked based on something else. That “something else” could be an interest rate, currency value, stock, commodity price or a specific event. Swaps are traded on designated contract markets—a term that refers to a federally regulated exchange—and are generally used to offset the financial implications of risk. They’re also regulated by the CFTC or the Securities and Exchange Commission.
Dodd-Frank amended the so-called CEA and attempted to clarify the definition of swaps.
Under Dodd-Frank, swaps are “any agreement, contract or transaction … that provides for any purchase, sale, payment or delivery … that is dependent on the occurrence, non-occurrence or the extent of the occurrence of an event or contingency associated with a potential financial, economic or commercial consequence.”
As Kalshi and the 3rd Circuit see it, the words “occurrence,” “event” and “contingency” mean “a thing that happens or takes place.”
That arguably captures the outcomes of sporting competitions.
The 9th and 6th Circuits, along with state sports betting regulators, disagree.
They contend it wouldn’t make sense to define “swap” to include sports betting since other sources of law regulate sports betting. They stress that sports event contracts function the same as sports bets; both involve placing a monetary wager on a potential outcome in a sports contest.
While there are differences between sports event contracts, whose prices reflect a marketplace of buyers and sellers, and wagers on a traditional sportsbook, where a single oddsmakers always sets the lines, the 9th and 6th Circuits, for purposes of the law, treat them as equivalent.
Enter the NFL, Dodd, Gensler and ‘Friends of the Court‘
In recent days, several non-parties to Kalshi v. Flaherty filed amicus briefs. They include the NFL, Dodd, Gensler, 145 Indian tribes and tribal organizations, the American Gaming Association and the Casino Association of New Jersey.
Though they emphasize different points, they urge the Supreme Court to review and ultimately reject the 3rd Circuit’s approach.
“Congress did not transfer jurisdiction over sports betting from the States to the CFTC,” Gensler writes, adding that he worked closely with Congress on amending the CEA.
In other words, Gensler is communicating that he knows what Congress meant by “swap.”
A former chair of the SEC, Gensler reasons that Dodd-Frank wasn’t an attempt to undo “federal policy against sports betting and displacing traditional state and tribal regulation” but instead a response to the Great Recession.
To that point, when Dodd-Frank became law in 2010, the Professional and Amateur Sports Protection Act (PASPA) of 1992 was in effect.
PASPA prohibited sports betting in 46 states (Nevada, Oregon, Delaware and Montana were exempt because they already had some form of sports betting in 1992). While the Supreme Court in Murphy v. NCAA (2018) held PASPA was unconstitutional, in 2010 it was still good law.
Gensler insists it wouldn’t have made sense for Congress to include sports bets within the meaning of “swap.” He points out the Senate majority leader at the time was Harry Reid (D-Nev.), who “would never have consented to legislation displacing an activity so critical to his state’s economy and politics by permitting sports betting only under CFTC auspices.”
Dodd, a principal architect of the legislation bearing his name, offers similar points.
He writes that treating a sports wager as a swap is nonsensical and wrong, and that “nothing in the statutory scheme” of Dodd-Frank “supports that result.”
Dodd maintains a swap requires some sort of event that has a “potential financial, economic, or commercial consequence,” and that a sports wager payout can’t itself “supply that consequence.”
If it did, Dodd warned, “every bet would become a swap because money changes hands” and Dodd-Frank would have undermined PASPA. Dodd insists that Dodd-Frank preserves rather than displaces state gaming authority.
In response to this line of thinking, the CFTC, which under President Donald Trump has taken the side of prediction market operators, issued an Interim Final Rule on Friday that “codifies the commission’s longstanding position that casino-style gambling products, including sports-wagering contracts entered into on a sportsbook and casino games, are not swaps and do not fall within the CFTC’s jurisdiction.” In other words, the CFTC believes it can govern prediction markets under the CEA without also obtaining oversight of traditional sportsbook or casino activity.
The NFL’s brief approaches the topic from a different perspective. The league can’t claim to be insiders on what Dodd-Frank intended by “swap,” but it can express frustration that the CFTC and “operators like Kalshi” haven’t adopted certain safeguards.
The NFL says it warned Kalshi and similar companies “to refrain from offering the sorts of easily manipulable or inherently objectionable event contracts.”
Those types of contracts include whether a kicker will miss a field goal or the number of broadcast mentions of a topic, as well as contracts regarding player injuries, fan safety and player misconduct. These contracts, the NFL warns, give rise to “significant risks for the NFL’s players, coaches, and officials, and market participants.”
Like Gensler and Dodd, the NFL maintains there’s a legal problem with the 3rd Circuit allowing sports prediction markets to operate beyond the reach of state regulators.
“What constitutional power allows Congress,” the NFL rhetorically asks, “to override states’ traditional police powers to regulate intrastate gambling?”
The NFL highlights the Supreme Court’s ruling in Ah Sin v. Wittman (1905) to show that regulating gambling is a recognized police power of states. The NFL also points out the U.S. Constitution enumerates the powers of Congress and, in doing so, doesn’t list any sort of “roving police power” to oversee gambling.
Where things go from here
While these amicus briefs are significant, it’s important to remember they’re authored by parties who are not part of the litigation. Gensler, Dodd and the NFL might be big deals in America but here they’re merely amici curiae, Latin for “friends of the court.”
Supreme Court justices might find these briefs helpful in understanding the issues, but whether they move the needle is up to the justices. At least four of the nine justices must agree to review a case for the Court to grant a writ of certiorari and, historically, the Court grants certiorari only about 1% to 2% of the time.
One factor that could lead the Court to grant review is the practical problem of federal circuits reaching conflicting answers on questions of law. The same activity is legal in some parts of the country and illegal in others.
This is problematic because it undermines the ideal of equal justice under law, it seems unfair and geographically random, invites uncertainty and confusion for consumers and businesses and encourages forum shopping by litigants.
Those concerns are especially true for sports gambling, which is legal and regulated in 39 states, along with Washington, D.C., and Puerto Rico, and illegal in 11 states, including California and Texas.
Here’s why: If sports event contracts are functionally synonymous with sports wagers, then Kalshi, Polymarket and other companies that wish to offer sports event contracts would need to obtain a license in 39 states, Washington, D.C., and Puerto Rico, and would not be able to offer the product in the other 11 states.
But if sports event contracts are regulated exclusively by the CFTC—a federal agency that permits them—then companies could offer them in every state and territory, regardless of what the state or territory thinks. (As an important aside, the ability to offer sports event contracts on tribal lands involves interaction with another federal law, the Indian Gaming Regulatory Act, and is subject to related litigation, Blue Lake Rancheria v. Kalshi).
Don’t expect the Supreme Court to take action yet, as Kalshi’s deadline to file a response isn’t until Nov. 9. But if one were placing money on a legal prediction, putting some dollars behind the Court granting certiorari in Kalshi v. Flaherty would be a wise choice, in this author’s non-betting opinion.
Dan Bernstein contributed to this reporting.