Friday afternoon, a federal appeals court ruled that Nevada can shut down Kalshi, one of the biggest prediction market apps in the country, for operating what the court called sports gambling in disguise. If you don't follow this stuff closely, that sentence probably needs some unpacking. So let's back all the way up, because by the time we get to the end of this, I think you'll see why I believe this ruling, and everything sitting around it, adds up to one company walking away the outright winner of the entire sports betting era. That company is Fanatics.
Quick intro if you're new here. I'm Carl, by day I run Joseph Black Law PLLC, a New York law practice where I work on startup and venture capital transactions, entertainment, music deals, and investment fund structures. By night, and honestly during a lot of stolen lunch hours, I write The Dime💰.
The Dime💰 exists for one reason: the most interesting financial stories in America run through culture, and almost nobody covers them with both the spreadsheet and the source material open at the same time. The music press covers the artist. The financial press covers the companies. The Dime💰 covers the deals.
What Fanatics Actually Is
You know Fanatics as the merch company, the one that makes the jersey you bought after your team won it all. That's still true, but it's not the whole story anymore. Fanatics is now four businesses stacked on top of each other under one private company run by founder and CEO Michael Rubin. There's Commerce, the original apparel business. There's Collectibles, built off buying Topps trading cards in 2022 for about 500 million dollars, and it now pulls in roughly 1.6 billion dollars a year with some of the best profit margins in the entire company. There's Betting and Gaming, the sportsbook. And there's Markets, a brand new prediction contracts business we'll get into shortly.
Jay-Z sits inside that third bucket as cofounder of Fanatics Betting and Gaming. He's a real investor who put his own money in back in August 2021 alongside Roc Nation, Insight Partners, Major League Baseball, and SoftBank, when the whole company was valued at 18 billion dollars. He used the same approach with Fanatics Sportsbook. Instead of building a platform from zero, he used FBG Enterprises Opco, LLC to acquire PointsBet's US operations for $225 million, which gave the platform access to 95% of the addressable online sports betting market in the US. That deal was cash, not stock, structured on a cash-free, debt-free basis and paid in two installments of $175 million and $50 million. PointsBet Holdings Limited remained a separately traded company on the ASX throughout, later selling its remaining Canada and Australia operations to Mixi, Inc.
For context, this was smart. PointsBet was a public company in Australia, the smallest player in the New York market, so acquiring just the American operations for cash rather than the whole company was the efficient move, and it's the same instinct that made Tidal work: buy the platform, not the baggage.
The Loophole Prediction Markets Were Built On
Now, the actual news from Friday.
Picture two ways to bet on whether the Chiefs cover the spread this weekend. Way one, you open DraftKings, FanDuel, or Fanatics Sportsbook, all three of which had to apply for a gambling license in every single state they operate in, one at a time, and all three of which get taxed by that state on what they win off you.
Way two, you open an app like Kalshi or Polymarket and buy something called an event contract, which pays out based on the same outcome, whether the Chiefs cover. Functionally it's the same bet. Legally, Kalshi calls it a derivative, the same category of financial product as a wheat futures contract or an interest rate swap, which puts it under one single federal regulator, the Commodity Futures Trading Commission, instead of fifty different state gaming commissions. That's the entire business model. Skip the state by state grind DraftKings, FanDuel, and Fanatics all had to go through, operate everywhere at once under one federal registration, and keep every dollar of it out of state gambling tax rolls.
For a while, courts let that argument stand. States started sending cease and desist letters anyway, Nevada, New Jersey, New York, Arizona, Illinois, Connecticut, all arguing a bet dressed up as a swap is still a bet. Kalshi sued back, and this April the Third Circuit Court of Appeals actually sided with Kalshi, ruling federal law overrides New Jersey's gambling laws.
Friday, the Ninth Circuit looked at the identical legal question and ruled the exact opposite way.
Argument One, The Chaos Doesn't Touch Fanatics
The Ninth Circuit's ruling came out of Nevada, where regulators tried to shut Kalshi down and Kalshi asked the court to block that shutdown while its case plays out. The court said no, and it didn't say no gently. The panel wrote plainly that the substance of Kalshi's sports contracts is sports gambling, no matter what Kalshi calls them on paper. That ruling now binds every federal judge across California, Arizona, and six other states inside the Ninth Circuit.
So now you've got the Third Circuit saying federal law wins, and the Ninth Circuit saying states win, on the same exact question. That's a circuit split, and Columbia law professor Joshua Mitts told CNBC it's the kind of split that all but guarantees the Supreme Court eventually has to step in and settle it. Nobody realistically expects that resolution before 2027.
Here's why that matters for Fanatics specifically. Fanatics never made the bet Kalshi made. It holds a fully licensed sportsbook in every single state it operates in, through its acquisition of PointsBet. While Kalshi is now facing a real shutdown risk in Nevada, an active 36 billion dollar lawsuit from New York's Attorney General, and conflicting rulings piling up in New Jersey, Maryland, Ohio, and Massachusetts, Fanatics loses exactly nothing from any of it. Not one license at risk. Not one product paused. Eighteen months of legal chaos is about to sit on top of this entire industry, and Fanatics is one operator standing completely outside the blast radius.
Argument Two, Fanatics Is Buying The Legal Path Anyway
Fanatics isn't just watching Kalshi struggle from a safe distance either, it's building the exact same product Kalshi built, just doing it the way the courts actually allow.
In December 2025, Fanatics launched its own prediction markets business, Fanatics Markets, after buying a company called Paragon Global Markets. At first it ran on borrowed infrastructure from Crypto.com. Then on July 27, the same week the legal fights were heating up, Fanatics agreed to buy Water Street Labs, which holds a CFTC approved license to operate as a Designated Contract Market, plus CX Clearinghouse, a CFTC registered Derivatives Clearing Organization, both bought from a company called BGC Group. There was no price on the deal, presumably because both parties were waiting on this decision. It appears that it's starting to clear now, which will give Fanatics the advantage in this transaction. Once that deal closes, Fanatics owns its own federally sanctioned exchange outright.
Think about what that actually buys Fanatics. If the Supreme Court eventually rules the other way and prediction markets survive as a category, Fanatics already has a fully compliant seat at that table too. Fanatics isn't picking a side in this fight. It built a structure that wins no matter which side the Supreme Court eventually lands on.
The Cultural Capital Sits On Solid Ground
This is where Jay-Z's role actually connects to this fight, and it's the part I think gets underrated. Every bit of cultural weight Jay-Z and Roc Nation Sports bring to Fanatics, the athlete relationships that feed Fanatics Collectibles, the programming that feeds Complex Bets, sits on top of a legal foundation that isn't going anywhere regardless of how any of these rulings shake out. You can build the coolest marketing campaign in the world, but if regulators can pull the plug on the underlying product, none of that marketing means anything. Jay-Z's equity stake only pays off if the company underneath him keeps operating, and Friday's ruling just made that outcome a lot more certain for Fanatics and a lot less certain for everyone trying to skip the licensing process Fanatics never skipped.
The Tax Math Explains Why States Are Fighting This Hard
New York taxes mobile sports betting at 51 percent of what an operator wins off bettors, tied for the highest rate in the country. Since Fanatics took over the license from PointsBet in early 2024, it has sent New York roughly 194.6 million dollars in tax revenue, more than it's actually kept as revenue for itself in that same stretch. Brutal number if you're only looking at it as a cost to Fanatics.
But flip it around and it tells you exactly why states are fighting Kalshi this hard. A state that built a 51 percent tax structure around sports betting has every reason in the world to make sure a federally chartered workaround doesn't quietly drain that same betting activity into a lane where the state collects nothing. Every ruling like Friday's protects that tax base. And the operator best positioned to absorb whatever bettors get pushed back out of the prediction market lane and into a licensed sportsbook is the one that already has the licenses everywhere. That's Fanatics.
The Economics Nobody Else Can Copy
DraftKings and FanDuel win from Friday's ruling too, to be fair, both stocks moved up on the news. But neither of them has what Fanatics has underneath it.
Signing up a new sports bettor costs the industry somewhere between $250 and $400 per customer, mostly spent on ads trying to convince a stranger to download your app instead of a competitor's. Fanatics mostly skips that cost. It already has tens of millions of people who buy jerseys and trading cards, and it's converting a slice of that existing base into bettors instead of paying to find brand new ones from scratch. It can hand a winning bettor a signed jersey at almost no cost, because Collectibles already paid for that athlete licensing relationship somewhere else in the building. DraftKings and FanDuel are winning a legal fight right now. Fanatics is winning the same legal fight while running an entirely different, cheaper economic engine that neither of them has access to.
Where I'll Push Back On My Own Argument
I'd be lying if I said this was a guaranteed outcome. The Supreme Court could still rule the other way and hand Kalshi a durable federal win, at which point a good chunk of this legal tailwind disappears and Fanatics goes back to fighting DraftKings and FanDuel head to head in a sportsbook market where it currently sits around sixth place. Matt King, who runs Fanatics Betting and Gaming, has said publicly the company isn't chasing market share numbers, which I take as an honest admission that it's still the newer player here, not the leader. And Kalshi isn't dead, it still has real footing in states inside the Third Circuit's jurisdiction, this fight is far from over.
The Ultimate Victory
But step back and look at where all of this is actually pointing. Every court ruling that goes against Kalshi's federal preemption argument removes risk from Fanatics and adds risk to Kalshi. Every state that wins its case widens a tax and licensing moat that Fanatics already built years ago the hard way. Every dollar of cultural capital Jay-Z and Roc Nation pour into the brand compounds on top of a legal foundation that isn't moving, while the ground under Kalshi keeps shifting month to month. Michael Rubin also has a personal stake in Kalshi so I guess he wins regardless?
That's the whole argument. Fanatics didn't need the loophole everyone else was racing to exploit, it built the fortress the slow way while the loophole was still working, and now that the loophole is starting to close, Fanatics is an operator sitting on both sides of the wall at once, fully licensed the traditional way and now fully positioned in prediction markets too. To the victor goes the spoils, and right now, no matter which circuit court you ask, Fanatics is the one nobody else in this fight can touch. That's it for this week's edition of The Dime💰. Don't be stingy with the 🏀. Pass this to a friend.
See y'all next week.
CJB