Two federal appeals courts have now reached opposite conclusions on whether sports-related event contracts are swaps, a class of regulated financial instrument under federal law. The Ninth Circuit Court of Appeals ruled that those contracts do not qualify, contradicting the Third Circuit's decision in April. The disagreement sets up a likely fight at the Supreme Court.
Prediction markets are platforms where participants trade contracts tied to the outcome of future events, including sporting events. Those contracts let people take positions on what will happen in a sporting event. The legal dispute turns on how those contracts are classified, because the classification determines what rules apply.
A swap is a financial agreement in which two parties exchange payments based on some underlying variable. The label matters. Contracts classified as swaps fall under federal oversight; contracts that fall outside that definition do not. The Third Circuit ruled in April that sports-related event contracts meet the swap definition. The Ninth Circuit reached the opposite conclusion.
How a circuit split leads to the Supreme Court
Federal appeals courts have equal authority within their own jurisdictions. When two of them reach opposite conclusions on the same question of federal law, neither ruling overrides the other. The result is called a circuit split. It means the same type of contract is treated differently depending on where a case is filed, because courts in different parts of the country now follow conflicting precedents. A company operating under the Ninth Circuit faces a different legal environment than one in the Third Circuit, even when dealing with the same type of contract.
The Supreme Court resolves those conflicts. A ruling from that court applies across every federal circuit, replacing the patchwork that a split creates. When two circuits directly contradict each other on a significant federal question, the Supreme Court often steps in. That is the situation the courts are now in.
Whether the Court will hear this dispute has not been decided. With the Ninth and Third Circuits pointing in opposite directions on how sports-related event contracts are classified, a fight at the nation's highest court is the likely next step.