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New Jersey has asked the U.S. Supreme Court to review whether states can regulate sports contracts offered by prediction markets such as Kalshi. The September 2 petition marks the first time the dispute over state versus federal oversight of sports prediction markets has reached the nation’s highest court.
Attorney General Jennifer Davenport and Division of Gaming Enforcement Interim Director Mary Jo Flaherty are asking the justices to overturn an April ruling from the U.S. Court of Appeals for the Third Circuit. The Supreme Court must first decide whether to accept the case before considering its merits.
New Jersey Challenges Kalshi’s Federal Preemption Argument
The dispute began after New Jersey ordered Kalshi to stop offering sports-related event contracts to users in the state without a state gambling license. Kalshi sued, arguing that its contracts are regulated under the federal Commodity Exchange Act and that the Commodity Futures Trading Commission’s jurisdiction prevents New Jersey from applying its sports-betting laws.
A divided Third Circuit panel sided with Kalshi in April, concluding that its sports event contracts qualify as swaps subject to the CFTC’s exclusive jurisdiction. New Jersey’s petition asks whether the 2010 Dodd-Frank Act actually preempts states from regulating sports bets offered on CFTC-registered markets.
Davenport said that they are calling on the Supreme Court to resolve this issue. New Jersey argues Congress did not intend to remove longstanding state authority over sports gambling through the federal derivatives framework.
Conflicting Appeals Court Rulings Raise Stakes
New Jersey’s filing comes after the Ninth Circuit reached a different conclusion in a case involving Nevada. The Ninth Circuit ruled in August that Kalshi had not shown federal commodities law preempts Nevada’s regulation of its sports contracts, putting its reasoning at odds with the Third Circuit.
Kalshi maintains that it operates as a nationwide financial exchange regulated by the CFTC and should not face separate gambling regulation in every state. The Supreme Court has not yet agreed to hear the case, but accepting New Jersey’s petition could provide a nationwide ruling on how federal derivatives law interacts with state sports-betting regulation.
