Nearly 40 state attorneys general are now aligned against the prediction market industry's central legal argument, and the Massachusetts Supreme Judicial Court appears inclined to agree with them. Singapore Summit: Meet the largest APAC brokers you know (and those you still don't!)During oral arguments in Kalshi’s appeal, justices questioned whether Dodd-Frank’s swap definition can override state gambling law. That question matters directly for brokers and platforms considering prediction market integration.The Swap Argument and its Limits Kalshi’s defense rests on the 2010 Dodd-Frank Act, which broadened the definition of a “swap” and placed event contracts under the exclusive federal jurisdiction of the Commodity Futures Trading Commission (CFTC). On that basis, Kalshi argues Massachusetts has no authority to regulate or ban its contracts. However, Chief Justice Scott L. Kafker pushed back directly. "If you want to gamble on a game, this is one way of doing it, right?" he asked. "This does seem to have a major aspect of sports gambling to it." Some justices acknowledged that Kalshi's exchange structure — where users set odds against each other rather than against a house — more closely resembles a financial market than a traditional sportsbook. That distinction did not appear to move the court toward Kalshi's position. State officials maintain that absent state-level consumer protections, a material regulatory gap exists regardless of how the product is classified under federal derivatives law.A Coordinated State Response The amicus coalition backing Massachusetts spans nearly 40 state attorneys general across party lines. Their argument is straightforward: if a product functions like a bet, it must be licensed and taxed as gambling. In New York, that tax rate reaches 51%. This coalition is directly opposed to the current CFTC, which under the Trump administration has defended its sole authority over prediction markets. The CFTC’s rulemaking on prediction markets drew more than 1,500 public comments, and those submissions showed a clear split. Financial firms and crypto investors, including Coinbase and Andreessen Horowitz, argued for federal derivatives treatment, while gaming regulators across multiple states pushed for state gambling oversight.What the Ruling Means for Brokers and Platforms Kalshi’s victory would confirm the CFTC’s federal preemption argument and allow brokers to offer event contracts within standard trading accounts without triggering state gambling licensing requirements.A loss would hand states a workable legal template to override federal preemption. Firms looking to enter the space would then face a state-by-state licensing and taxation regime — a cost structure that would likely price out all but the largest platforms. The case is a likely precursor to U.S. Supreme Court review. Until that question is resolved, the industry’s reliance on federal derivatives classification remains uncertain. It depends on whether courts treat sports event contracts as derivatives rather than bets — a position Massachusetts is not prepared to take. This article was written by Tanya Chepkova at www.financemagnates.com.

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