Prediction markets are heading toward a legal reckoning. The platforms let users buy and sell contracts that pay out based on real-world outcomes—elections, economic indicators, and, increasingly, sports—occupying a gray zone between financial exchange and sportsbook that is exactly what the fight is about. The Commodity Futures Trading Commission and state regulators are locked in a battle over who gets to police the fast-growing platforms, and according to Flip Pidot—a prediction market executive with nearly 20 years of industry experience—the conflict could force the Supreme Court to settle the question before the end of next year.

"When you have a high-stakes intergovernmental conflict where a federal regulator like the CFTC is opposed in their position to a supermajority of state attorneys general… then that can get the Supreme Court's attention," Pidot, Chief Strategy Officer at PredictIt, told Fortune. Pidot first made the remark at a prediction markets event in New York City this week. PredictIt has its own history with the commission: the CFTC moved in 2023 to revoke the no-action letter that allows the platform to operate, and a federal appeals court later vacated the withdrawal.

A widening court fight

In April, the U.S. Court of Appeals for the Third Circuit sided with Kalshi, a CFTC-registered exchange based in New York, in its dispute with New Jersey, finding that federal commodities law overrode the state's gambling laws for the platform's contracts. The ruling affirmed a lower-court decision allowing Kalshi to continue operating in the state.

Several pending cases, however, could produce rulings more favorable to state regulators. Earlier this year, a Ninth Circuit panel heard arguments over Nevada's effort to enforce its gambling laws against event contract platforms; the judges appeared skeptical of the arguments made by three prediction market companies. Over the past two months, Kalshi has also appealed to the Second Circuit in response to adverse rulings by federal judges in New York and Connecticut.

If just one of these appeals courts sides with the states over Kalshi, it will create a circuit split that will likely prompt the Supreme Court to step in. Pidot expects that to occur as soon as November, and if the Supreme Court does choose to hear the case, a ruling would likely come next June.

The legal tussle comes as prediction markets have proliferated across the United States over the past two years, with platforms such as Kalshi and the crypto-based Polymarket drawing billions of dollars in trading around the 2024 presidential election. Under the Trump administration, the CFTC has taken a more accommodating stance toward the platforms, arguing that event contracts traded on CFTC-registered exchanges fall under its exclusive authority. The friction escalated after Kalshi began listing sports contracts in early 2025: states have pushed back, contending that contracts tied to sports amount to unlicensed wagering—an issue that carries especially high stakes in states that depend heavily on gaming revenue.

Economic stakes

Beyond a circuit split, other factors make Supreme Court review of the prediction markets regulatory dispute nearly inevitable, according to Stephen Piepgrass, a prediction markets lawyer and partner at law firm Troutman Pepper Locke.

Among them: the dispute raises constitutional questions. In 2018, in Murphy v. NCAA, the Supreme Court ruled that the federal government could not prevent states from allowing sports betting because doing so violated the Tenth Amendment. The decision allowed each state to decide whether and how to regulate sports betting. Because prediction market contracts resemble sports bets, states have argued that the CFTC is taking away their power to regulate them. In response, the CFTC has said that the Commodity Exchange Act gives it sole power over swaps and futures contracts, preempting state laws.

Prediction markets' rapid growth has also raised economic stakes that could draw the Supreme Court's attention. The platforms threaten established gambling businesses such as casinos and disrupt Native American economies that rely heavily on gaming revenue. At the same time, companies and institutions are increasingly exploring prediction markets as financial tools for hedging risk.

"This is top of mind for so many Americans… It has a huge potential impact on the economy, and we've only scratched the surface of it," Piepgrass said.

This story was originally featured on Fortune.com.