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New Jersey challenges its Third Circuit loss
In April, the Third Circuit upheld preliminary relief that stopped New Jersey regulators from enforcing state gambling laws against Kalshi's sports contracts. The court found Kalshi had shown a reasonable chance of proving that sports event contracts qualify as swaps under the Commodity Exchange Act, whose exclusive-jurisdiction provision could displace conflicting state requirements.
New Jersey now argues that Congress did not clearly authorize federally registered markets to offer sports betting nationwide without complying with state gambling laws. Sports wagering has long fallen under state authority, the state contends, and registering an exchange with the CFTC does not automatically turn a sports bet into a federally protected financial contract.
The petition also invokes the major-questions doctrine, the principle courts apply when an agency claims authority over matters with major economic and political consequences without clear direction from Congress. The state called the Third Circuit's interpretation "astonishing" and warned of grave consequences for the balance between federal and state power.
Circuit split strengthens case for review
New Jersey's filing points to a conflicting Ninth Circuit decision that allowed Nevada to enforce its gaming laws against prediction market sports contracts. The Ninth Circuit found those contracts were likely wagers rather than swaps, directly disagreeing with the Third Circuit's reasoning and creating opposite rules in different parts of the country.
A split between appellate courts is one factor the Supreme Court weighs when deciding whether to hear a case, though the filing does not mean the justices have accepted it. Kalshi will have an opportunity to respond before the court decides whether to grant review.
The dispute has spread well beyond two states. By mid-August, more than 20 lawsuits and cease-and-desist actions had been filed across the U.S. A federal judge rejected Coinbase's request to block Michigan regulators from acting against sports prediction markets, and New York is suing Kalshi for at least $36 billion in penalties over products state officials describe as unlicensed gambling. Twenty states have moved against prediction operators as the industry's revenue crosses new milestones.
Kalshi defends federal framework
Kalshi maintains that the CFTC's exclusive jurisdiction over its registered exchange overrides state gambling laws. In a statement, the company said the Ninth Circuit still accepted the central principle that CFTC oversight can preempt state law, disagreeing only over how an existing regulation applies to sports contracts. That regulation is already being rewritten, the company noted.
"We remain confident in the lower courts' rulings, and nothing in New Jersey's filing today changes our view," Kalshi said. The CFTC has proposed changes to its event-contract rules, but any final regulation could face its own court challenge over the agency's legal authority or rulemaking process.
The legal fight has not slowed investor enthusiasm. An Aug. 25 SEC filing showed Kalshi's valuation climbing as private investors continue backing the largest prediction platforms, even as states line up against them. A Supreme Court decision, if the justices take the case, would finally settle whether prediction markets are a federal financial product or state-regulated gambling, an answer that will shape the industry's future for years.
