New Jersey has officially asked to take the prediction markets court battle to the United States Supreme Court.
State regulators filed a petition asking the court to review the United States Court of Appeals for the Third Circuit’s decision that protected Kalshi’s sports-event contracts from New Jersey gambling enforcement.
The move was expected, but the timing makes it much more consequential. The US Court of Appeals for the Ninth Circuit handed New Jersey exactly what it needed last week: a clean appellate split on whether these products are swaps subject to the exclusive authority of the Commodity Futures Trading Commission or sports bets that states can regulate.
“Companies like Kalshi claim to offer legal sports betting in all 50 States, but they refuse to follow the gambling laws of any State,” New Jersey Attorney General Jennifer Davenport said in a release. “These companies have no right to offer their sports bets without following state law, which is why dozens of States across the ideological spectrum have opposed them. States have long adopted careful laws to regulate gambling, including to prevent compulsive gambling, gambling by minors, and insider trading on sports games. We’re calling on the Supreme Court to resolve this issue and recognize that Congress did not silently make the sports-betting industry immune from state law.”
The case for Supreme Court review
New Jersey’s petition centers on the basic question behind virtually every major prediction market case now moving through the courts:
When users trade contracts on a game’s outcome, a point spread or player performance, are they participating in federally regulated derivatives trading or simply sports betting through a different product structure?
The Third Circuit sided with Kalshi earlier this year, holding that the company’s sports contracts were swaps traded on a federally designated contract market and therefore fell under the CFTC’s exclusive jurisdiction. That prevented New Jersey from applying its own gambling rules while the litigation continued.
But the Ninth Circuit reached the opposite result last week in Kalshi’s Nevada case. It held that Kalshi’s sports contracts are sports bets, not swaps, and said the Commodity Exchange Act does not preempt Nevada from enforcing its gaming laws.
That split is now the centerpiece of New Jersey’s Supreme Court pitch. The state argues that the same federally registered platform should not be exempt from New Jersey’s state gambling laws while being subject to those laws in Nevada.
New Jersey’s argument
Davenport framed the dispute in straightforward terms:
“Companies like Kalshi claim to offer legal sports betting in all 50 States, but they refuse to follow the gambling laws of any State.”
The state’s position is that Kalshi cannot transform sports betting into a federally protected swap simply by listing its contracts on a CFTC-designated exchange. New Jersey has a mature legal sports betting market, with licensed operators, consumer-protection requirements, tax obligations and regulatory oversight.
Its complaint is not just about whether users can trade contracts on sports outcomes but whether prediction markets can offer materially similar products without complying with any of the state framework required of sportsbooks.
“Kalshi markets itself as the ‘first app for legal sports betting in all 50 States,’ including for wagering on NCAA games held in New Jersey and participated in by New Jersey teams, which is impermissible under New Jersey’s Constitution. But Kalshi does not abide in any way with our State’s gaming laws,” NJ Division of Gaming Enforcement Interim Director Mary Jo Flaherty said in the statement. “This is a states’ rights issue. In New Jersey, gaming is prohibited by its Constitution, other than for exceptions approved by New Jersey voters. In this case, the State is upholding the will of New Jerseyans regarding the manner in which gaming can be conducted.”
The Ninth Circuit’s decision boosted that argument, ruling that the substance of Kalshi’s sports contracts is gambling “regardless of whether Kalshi calls them swaps.” The panel also found that existing CFTC rules prohibit a registered market from listing contracts involving gaming, and that the CFTC is not a national gambling regulator.
The circuit split changes everything
Before last week, New Jersey had a compelling request for review but not the cleanest possible reason for the Supreme Court to take it. Now it has one.
The Third Circuit concluded that Kalshi’s sports contracts qualify as swaps and that the CEA preempts New Jersey gambling enforcement. The Ninth Circuit held that the same category of products does not qualify as swaps, that states retain their traditional power over gambling, and that the CFTC’s current gaming rule cuts against Kalshi’s position.
Other cases remain active or unresolved in courts including the Fourth Circuit, while district courts in Tennessee, Arizona, Ohio, Maryland and New York have delivered mixed results.
That kind of direct split on a national regulatory question is exactly the situation in which Supreme Court review becomes more likely. It does not guarantee the justices will take the case, but New Jersey’s petition now offers a much cleaner vehicle than it did before the Nevada ruling.
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