U.S. Supreme Court to Address Landmark Prediction Market Dispute: Federal vs. State Oversight of Event Contracts

On September 2nd, Eastern Time, the State of New Jersey officially filed a petition for a writ of certiorari with the U.S. Supreme Court. The petition seeks review of a critical lawsuit between prediction market platform Kalshi and state gambling regulators, aiming to resolve whether platforms regulated by the U.S. Commodity Futures Trading Commission (CFTC) can offer contracts tied to sports outcomes to users nationwide without complying with individual state gambling laws.

The Core Dispute: Are Event Contracts Derivatives or Sports Betting?

At the heart of New Jersey’s appeal is a fundamental question for the Supreme Court: Does the 2010 Dodd-Frank Act preempt state regulatory authority, thereby preventing states from governing sports wagers offered within their borders by markets registered with the CFTC?

Kalshi classifies its offerings as “sports event contracts,” asserting they fall under the definition of swaps or event-based derivatives regulated by the Commodity Exchange Act (CEA). As a CFTC-registered Designated Contract Market, Kalshi argues that these transactions should be subject to uniform federal oversight by the CFTC, precluding state-level restrictions under gambling laws.

Conversely, New Jersey contends that for the average user, these binary contracts—where payouts are solely determined by game outcomes, player performance, or other sports results—are indistinguishable from traditional sports betting. The state emphasizes that when Congress enacted the Dodd-Frank Act following the financial crisis, it did not explicitly transfer the long-standing state authority over sports betting regulation to the CFTC.

Third Circuit Court Ruled in Favor of Kalshi

The legal battle originated in 2025 when the New Jersey Division of Gaming Enforcement issued a cease-and-desist order to Kalshi, alleging that its sports event contracts violated state gambling laws, including restrictions on wagering on collegiate sports. Kalshi subsequently filed a lawsuit in federal court to prevent the state from enforcing its order.

In April 2026, the Third Circuit Court of Appeals, in a 2-1 decision, upheld a preliminary injunction against New Jersey. The majority concluded that Kalshi’s sports event contracts likely meet the CEA’s definition of “swaps.” Since swaps traded on CFTC-registered markets are generally subject to the CFTC’s exclusive jurisdiction, the court found that New Jersey’s laws were likely preempted by federal statute.

It is crucial to note, however, that the Third Circuit’s ruling concerned only a preliminary injunction. The court assessed Kalshi’s reasonable probability of success at trial and whether the state could enforce its laws during litigation, rather than issuing a final substantive judgment on the entire dispute.

Ninth Circuit Court Holds Opposite Stance, Deepening Legal Divide

Days before New Jersey petitioned the Supreme Court, the Ninth Circuit Court of Appeals delivered a conflicting ruling in a separate case involving Kalshi and Nevada regulators, further widening the legal chasm.

On August 28th, 2026, the Ninth Circuit ruled that Kalshi had failed to demonstrate that the Commodity Exchange Act preempted Nevada’s gambling laws. The court reasoned that, based on the overall structure and common understanding of the statute, contracts whose outcomes are solely determined by sports results should not automatically be considered federal swaps. Furthermore, existing CFTC rules impose limitations on event contracts involving “gambling.” Consequently, the court permitted Nevada to continue its regulatory actions against Kalshi’s sports products.

In its Supreme Court petition, New Jersey highlighted the direct and irreconcilable conflict between the Third and Ninth Circuit rulings: one suggesting federal law likely preempts state regulation, the other affirming states’ ability to enforce gambling laws. The state noted that this ongoing dispute has drawn at least 20 states into various litigations.

State Governments Emphasize Age Restrictions and Problem Gambling Protections

New Jersey underscored that licensed sports betting operators within its borders must adhere to strict regulations, including a minimum age of 21, geo-location verification, financial and operational audits, and robust self-exclusion and problem gambling support systems. State law also prohibits athletes, coaches, referees, and team personnel with insider information from placing bets and restricts wagering on games involving New Jersey collegiate teams.

The state argues that if platforms can bypass diverse state-level gambling licenses, age restrictions, and consumer protection rules merely by registering as a CFTC Designated Contract Market, it would fundamentally reshape America’s long-established state-centric gambling regulatory framework.

The CFTC, however, maintains an opposing stance. The agency has filed court briefs in several lawsuits this year, asserting that when event contracts are traded on CFTC-registered markets, they fall under its exclusive regulatory purview. It argues that states cannot reclassify these contracts as gambling to intervene in federal derivatives markets.

Supreme Court Has Not Yet Decided to Hear the Case

New Jersey’s current filing is a petition for a writ of certiorari, meaning the Supreme Court must first decide whether to hear the case. Each week, the Supreme Court evaluates a substantial number of requests to review lower court decisions, with only a select few cases proceeding to full briefing and oral arguments. Therefore, no hearing date or final ruling timetable has been set at this stage.

Should the Supreme Court grant certiorari and rule in favor of New Jersey, state-level licensing, age, and product restrictions for sports event contracts could be reinstated, potentially requiring platforms like Kalshi to adapt their services on a state-by-state basis. Conversely, if the Court sides with Kalshi, the direct enforcement power of state gambling agencies over CFTC-registered prediction markets could significantly diminish, making it easier for platforms to offer nationwide sports event contracts under a single federal license.

While this case directly addresses sports-related event contracts, it does not imply that the Supreme Court is poised to rule on the legality of all political, economic, cryptocurrency, or other types of prediction markets. Nevertheless, how the Court ultimately defines “event contract,” “swap,” and “gambling” could have profound and widespread implications for the regulatory boundaries and business models of prediction markets across the United States.

Related Content:

• New York Sues Prediction Market Kalshi, Demands Shutdown; CFTC Issues Emergency Order for “Continued Operation”
• Clashing with Michigan State Court! U.S. CFTC Steps In to Support Kalshi, Blocks “Rescission of Transactions” Order