New Jersey is urging the U.S. Supreme Court to examine whether prediction markets can offer contracts for sports events without adhering to state gambling regulations. This request comes in response to a conflict among federal appeals courts regarding Kalshi's business operations.
On September 2, the state submitted a petition for a writ of certiorari, questioning if the Dodd-Frank Wall Street Reform and Consumer Protection Act prevents states from regulating sports bets placed within their jurisdictions, provided these bets are conducted on markets approved by the Commodity Futures Trading Commission (CFTC).
Earlier in April, the Third Circuit ruled in a 2-1 decision that Kalshi's sports contracts are classified as swaps, thus federal commodities law takes precedence over New Jersey's gambling regulations. This ruling contrasts with a recent decision from the Ninth Circuit, which concluded that Kalshi's contracts do not qualify as swaps under federal law, affirming that Nevada's gambling laws are not overridden.
New Jersey describes this disagreement as a “direct, acknowledged, and irreconcilable split” and asserts that Supreme Court involvement is essential. Attorney General Jennifer Davenport emphasized that while companies like Kalshi claim to offer legal sports betting across all states, they do not adhere to any state's gambling laws.
New Jersey is advocating for the Supreme Court to clarify this matter, arguing that Congress did not intend to exempt the sports betting sector from state legislation.
Furthermore, New Jersey contends that Kalshi’s interpretation of federal law could also impact traditional sportsbooks and casinos. The Third Circuit's ruling categorized Kalshi’s sports event contracts as swaps under the Commodity Exchange Act, which prohibits companies from offering swaps outside CFTC-regulated markets. If Kalshi's assertion is accurate, it implies that sportsbooks, which have been operating legally since the Supreme Court overturned the federal sports betting ban in 2018, may have been violating Dodd-Frank regulations all along.
Judge Jane Roth expressed similar concerns in her dissenting opinion, suggesting that defining sports bets as swaps could lead to extreme interpretations, as swaps traded outside CFTC-registered markets are typically illegal.
Legal tensions surrounding prediction markets have escalated since Kalshi began offering sports contracts in January 2025. The company, along with others in the prediction market sector and the CFTC, is embroiled in litigation with 20 states. New Jersey's petition highlights widespread opposition from 44 states, numerous tribes, casinos, and public officials.
A report from gaming attorney Daniel Wallach noted 39 judicial decisions related to prediction market disputes, with 33 favoring state interests and six siding with prediction market entities. Following Michigan’s preliminary injunction against Kalshi on September 1, the total has now reached 40 decisions, with 34 supporting states.
Kalshi has responded to New Jersey's petition by asserting its position as a national financial exchange, arguing that it should not be subjected to the regulatory frameworks of 50 different states.