Key Insights
- New Jersey escalated its prediction market dispute with Kalshi.
- Federal appeals courts issued conflicting rulings on sports event contracts.
- Supreme Court review could clarify federal and state regulatory authority.
On Sept. 2, New Jersey brought its ongoing prediction market battle with Kalshi to the U.S. Supreme Court, requesting a review of a judicial ruling that restricts state oversight regarding sports event contracts.
Attorney General Jennifer Davenport and Mary Jo Flaherty, the interim director of the New Jersey Division of Gaming Enforcement, submitted a petition for a writ of certiorari to contest an April decision from the Third Circuit. The state is asking the justices to decide whether the Commodity Exchange Act stops states from enforcing gambling regulations on sports contracts hosted on exchanges regulated by the CFTC.
This legal action followed a conflicting ruling from the Ninth Circuit just days prior in a comparable Nevada lawsuit. This divergence gives the Supreme Court a clear pathway to settle a widening federal-state jurisdiction conflict impacting Kalshi alongside other prediction-market platforms.
Prediction Market Case Reaches Supreme Court
Following its defeat in the Third Circuit, New Jersey submitted a petition for a writ of certiorari, prompting the Supreme Court to evaluate *KalshiEX LLC v. Flaherty*.
According to Supreme Court documents, New Jersey previously asked for extra time to file its petition, after which Justice Samuel Alito granted an extension through Sept. 3.
The conflict began when state gaming officials in New Jersey contested Kalshi’s event contracts tied to sports. In response, Kalshi maintained that federal regulations barred state regulators from applying local gambling restrictions to these specific contracts.
During her Sept. 2 announcement, Davenport dismissed that perspective, asserting that companies providing sports wagers are obligated to follow state gambling rules.
The legal filing questions whether the Dodd-Frank amendments to the Commodity Exchange Act preempt state laws concerning sports gambling when those agreements are transacted on markets registered with the Commodity Futures Trading Commission.
New Jersey noted that parallel legal challenges have surfaced in at least 20 states, arguing that these contradictory rulings introduce significant uncertainty for both regulators and federally registered prediction-market companies.
Prediction Market Rulings Split Federal Appeals Courts
In a 2-1 decision issued on April 6, the Third Circuit ruled in favor of Kalshi. Judge David Porter noted that Kalshi demonstrated a reasonable probability of prevailing on the issue of federal preemption.
The court upheld a preliminary injunction that stops New Jersey from imposing gambling laws on Kalshi’s sports contracts, with the majority categorizing these instruments as swaps under the Commodity Exchange Act.
That stance clashed directly with an Aug. 28 ruling from the Ninth Circuit, which supported Nevada’s authority to enforce its gaming statutes against Kalshi’s sports contracts.
Writing for the panel, Judge Ryan Nelson concluded that the contracts function as sports wagers rather than swaps, indicating that federal law likely does not preempt the gaming regulations of Nevada.
Additionally, the Ninth Circuit referenced Commodity Futures Trading Commission Regulation 40.11, a rule governing event contracts tied to gaming alongside other designated activities.
Because these conflicting decisions generated divergent legal outcomes across federal jurisdictions, New Jersey pointed to this circuit split while urging the Supreme Court to step in.
Kalshi Prediction Market Faces Federal-State Jurisdiction Test
Kalshi functions as a contract market designated by the Commodity Futures Trading Commission, and filings within the regulator’s database have categorized many of Kalshi’s event products as binary options or swaps.
This federal designation serves as the foundation of Kalshi’s defense, as the firm contends that federal statutes grant regulators exclusive oversight over qualifying contracts on designated markets.
Conversely, New Jersey contends that Congress did not strip states of their traditional authority over sports gambling when it enacted Dodd-Frank.
Meanwhile, the Commodity Futures Trading Commission shifted its broader approach to event contracts during 2026. On Feb. 4, the agency rescinded a proposed event-contract rule along with an advisory on sports from 2025.
Chairman Michael Selig stated that the commission intended to draft a new event-contract rule under the Commodity Exchange Act, though no final replacement had been issued at the time New Jersey made its filing.
Separately, the regulator published a prediction-market enforcement advisory on Feb. 25, recognizing Kalshi as a designated contract market while tackling fraud related to event contracts.
These federal moves demonstrate ongoing CFTC engagement with prediction-market oversight, yet they fail to resolve the state preemption questions currently dividing the appellate courts.
Prediction Market Fight Now Depends on Supreme Court Review
The Supreme Court has not yet agreed to take up New Jersey’s case, as submitting a certiorari petition seeks a review of a lower-court decision without guaranteeing the court will hear it.
Docket records for the Supreme Court already reflect New Jersey’s prior requests for extensions in the matter, which listed Flaherty and Davenport as the applicants opposing KalshiEX.
The stakes for the petition grew higher following the Ninth Circuit ruling, leaving two federal appeals courts with opposing interpretations of Kalshi’s sports contracts under federal commodities law.
A ruling from the Supreme Court could set a single national standard for similar agreements and clearly define the boundary between federal derivatives oversight and state gambling authority.
The next verifiable milestone will be the Supreme Court’s decision regarding New Jersey’s petition. Until that occurs, the conflicting appellate rulings remain active.
This article is for informational purposes only and does not constitute legal or financial advice.
FAQ
Why did New Jersey go to the Supreme Court?
New Jersey asked the Supreme Court to review a Third Circuit ruling that limited state oversight of sports event contracts on Kalshi.
What did the Third and Ninth Circuits decide?
The Third Circuit ruled for Kalshi and blocked New Jersey from enforcing gambling laws, while the Ninth Circuit upheld Nevada’s ability to enforce gaming laws against Kalshi’s sports contracts.
Does the Supreme Court have to hear the case?
No, filing a petition for a writ of certiorari requests review from the Supreme Court but does not guarantee acceptance.
What federal agency regulates Kalshi?
Kalshi operates as a Commodity Futures Trading Commission-designated contract market.
