NFL Tells Supreme Court Sports Contracts Are Gambling, Not Swaps
The National Football League has filed an amicus brief with the U.S. Supreme Court arguing that sports prediction contracts offered by platforms such as Kalshi are gambling products, not federally regulated derivatives. The brief, filed in Flaherty v. KalshiEX, LLC, No. 26-299, backs New Jersey regulators who want the right to apply state gambling law to these contracts. If the Court agrees to hear the case and ultimately sides with that view, the classification of prediction market positions could shift from the CFTC's derivatives framework to a patchwork of state gambling regimes, a distinction with real consequences for firms that hold or clear these contracts.
What the NFL Is Actually Arguing
The league's core claim is straightforward: a contract whose value depends entirely on the outcome of a sporting event is not a "swap" under the Commodity Exchange Act. The NFL draws on reasoning from both the Sixth and Ninth Circuits, which have held that swaps are instruments designed to hedge a preexisting financial risk. A bettor placing a contract on an NFL game result has no underlying financial exposure to that outcome in the traditional hedging sense; they are simply speculating on an event. The league contends that calling such a contract a swap stretches the term beyond its legal meaning and, in doing so, improperly strips states of their authority to regulate gambling within their borders.
The CFTC's Exclusive Jurisdiction Is the Real Battleground
Kalshi's legal strategy has rested on the argument that its contracts are CFTC-regulated event contracts and therefore preempt state gambling laws. That argument has so far provided the company with a degree of regulatory shelter, allowing it to operate nationwide without seeking individual state gaming licenses. The NFL's brief attacks that position directly, arguing that federal preemption should not apply to products that function, in practice, as wagers. The CFTC, for its part, has moved to restrict certain contracts it views as susceptible to manipulation, including markets tied to individual plays and player injury outcomes. CFTC Chairman Michael Selig has indicated the agency would defer to sports leagues on integrity-related concerns, a position that sits uneasily alongside Kalshi's claim of comprehensive federal protection.
Volume and Stakes Are Not Small
The NFL cited its own data showing that nearly $2 billion of $3.3 billion in prediction market trading on the first Sunday of the 2026 NFL season was linked to NFL events. Broader market data indicates that prediction market trading volume surpassed $25 billion in 2025, and Kalshi alone had cleared more than $173 billion in overall volume by late August 2026. These are not niche figures. They represent a category of financial activity large enough to appear on institutional balance sheets, in client portfolios, and in the transaction histories that accounting and compliance teams are being asked to review.
A Divided Sports Industry and a Split Among Courts
The NFL's position is conspicuously at odds with other major U.S. leagues. MLB has named Polymarket as an official partner and struck a separate agreement with the CFTC focused on betting integrity. The NHL has partnerships with both Polymarket and Kalshi. Polymarket also secured a notable regulatory milestone in January of this year. This split means that even within the world of professional sports, there is no consensus on whether prediction markets are legitimate financial infrastructure or unregulated gambling dressed in fintech language.
Gaming attorney Daniel Wallach observed on X that it is "extremely telling" that the league which has most forcefully advocated for federal oversight is now rejecting the specific federal framework that prediction market operators rely on. He suggested the brief meaningfully raises the probability that the Supreme Court grants certiorari. Intellectual property attorney Ariel Givner offered a counter-view, arguing that the NFL and state regulators are conflating the sporting event itself with the nature of the financial contract, a distinction that courts will need to resolve carefully.
Regulatory Classification Risk for Accounting and Compliance Teams
For B2B readers, the pending Supreme Court decision creates a genuine classification problem. The accounting treatment of a position depends substantially on whether it is a derivative instrument under a federal framework or a gambling wager subject to state law. These two categories attract different accounting standards, different tax treatments, and different AML and licensing obligations.
How the Two Outcomes Map to Accounting Standards
If the Supreme Court ultimately affirms CFTC jurisdiction, sports prediction contracts would continue to be treated as event contracts under the Commodity Exchange Act. Firms and their clients would account for open positions as derivatives, applying mark-to-market or fair value measurement under ASC 815 or IFRS 9 as applicable, with gains and losses flowing through the income statement. Margin and collateral posted would be recorded as financial assets or liabilities. Standard derivatives disclosures, including notional amounts and credit risk, would apply.
If the Court rules in favor of New Jersey and the NFL, the classification shifts. Gambling receipts and wagers are generally not derivatives for accounting purposes. Depending on the state framework that applies, these positions might be treated as contingent liabilities, as revenue when settled, or in some cases as off-balance-sheet items. The tax treatment also diverges: gambling winnings attract different withholding and reporting requirements than derivatives gains, and the ability to net losses differs materially between the two regimes.
AML and Licensing Implications
State gambling classification carries additional compliance obligations. State-regulated sportsbooks operate under licensing regimes that include know-your-customer requirements, responsible gambling controls, and data-sharing arrangements with sports leagues. The NFL's brief explicitly calls for prediction market operators to adopt safeguards comparable to those already required of sportsbooks, including age verification measures and cooperation on insider information. If the Court endorses that view, any firm that has cleared or custodied sports prediction contracts without applying gambling-grade AML controls may need to review its historical transaction records and risk assessments.
Firms using crypto compliance reporting workflows should note that prediction market positions are already surfacing in digital asset accounting contexts, particularly where platforms settle in stablecoin or crypto. The intersection of derivatives uncertainty and crypto settlement adds a second layer of classification risk that crypto bookkeeping software configurations need to accommodate. For a broader look at US crypto market structure rules and their political durability, the regulatory picture remains fluid across multiple asset categories simultaneously.
What Firms Should Do Before the Court Rules
The Supreme Court has not yet agreed to hear the case. A cert grant is not guaranteed, but the NFL's intervention and the existing circuit split make it more likely than it was before this brief was filed. In the interim, firms face a period of deliberate ambiguity.
Practical Steps for Accounting and Compliance Teams
First, inventory any client or proprietary exposure to prediction market positions, particularly those tied to sporting events. Platforms that settle in crypto or stablecoins may require reconciliation within digital asset accounting software to capture both the derivative and the settlement leg correctly.
Second, document the regulatory classification treatment currently applied to these positions and the legal basis for that treatment. If your firm has relied on CFTC event contract status to avoid state gambling compliance, that rationale should be written down and reviewed by legal counsel in light of the NFL brief.
Third, flag prediction market balances as a contingent classification risk in internal controls documentation. Auditors reviewing financial statements for periods that straddle a potential Supreme Court ruling will want to see that management identified and monitored this uncertainty.
Fourth, monitor CFTC rulemaking. The agency has already moved to restrict specific contract types and has signaled willingness to defer to leagues on integrity grounds. Further CFTC action before a Supreme Court ruling could narrow the categories of contracts that retain federal protection, changing the accounting picture without waiting for judicial resolution. Understanding how the CFTC is approaching retail crypto regulation more broadly provides useful context for anticipating the agency's next moves in adjacent markets.
The Bigger Picture for Digital Asset Firms
Prediction markets are not a purely crypto story, but they have become deeply intertwined with the digital asset ecosystem. Many platforms settle contracts in stablecoins, use blockchain infrastructure for trade confirmation and settlement, and attract users who also hold crypto portfolios. That means the outcome of Flaherty v. KalshiEX will land in ledgers that crypto accounting software already touches. A ruling that moves these contracts from the derivatives column to the gambling column will require retroactive review of how past periods were reported, not just prospective adjustments.
The NFL's decision to enter this dispute is significant precisely because the league had previously been seen as more amenable to federal oversight of sports-adjacent financial products than some state regulators. Its reversal signals that even constituencies broadly comfortable with financial innovation have limits. For accounting professionals and CFOs, that signal is worth noting: the question of what counts as a swap and what counts as a bet is no longer purely theoretical. It is heading toward a definitive judicial answer, and the firms that prepare their records now will be better positioned regardless of which way the Court rules.
Frequently Asked Questions
What is Flaherty v. KalshiEX about?
It is a case before the U.S. Supreme Court in which New Jersey regulators argue that sports prediction contracts offered by platforms like Kalshi are gambling products subject to state law, not federally regulated derivatives subject to the exclusive jurisdiction of the CFTC. The NFL has filed an amicus brief supporting New Jersey's position.
Why does the swap versus gambling distinction matter for accounting?
Derivatives and gambling instruments are accounted for under different frameworks. A derivative typically requires mark-to-market measurement and specific financial statement disclosures under ASC 815 or IFRS 9. A gambling wager is treated differently for both accounting and tax purposes, affecting how gains and losses are recognised and reported.
Does this affect firms that hold crypto-settled prediction market positions?
Yes. Where platforms settle prediction market contracts in stablecoins or other crypto assets, the settlement leg introduces a second classification question on top of the instrument classification. Digital asset accounting software needs to handle both the trade and the settlement correctly, and a reclassification of the instrument type could require historical adjustments.
Has the Supreme Court agreed to hear the case yet?
Not as of the date of this article. The NFL's amicus brief supports New Jersey's petition for certiorari, meaning it is asking the Court to take up the case. Legal observers have noted that the brief meaningfully raises the probability of a cert grant, given the existing circuit split on the question.
What AML obligations could change if prediction markets are classified as gambling?
State gambling regimes typically require operators to hold gaming licenses, conduct enhanced customer due diligence, apply responsible gambling controls, and share data with sports leagues on integrity concerns. Firms that have relied on federal CFTC preemption to avoid those obligations may need to review their historical compliance programmes if the Court rules in favour of state jurisdiction.
Source: The Block