New Jersey has formally asked the U.S. Supreme Court to decide if Kalshi and similar prediction markets can legally offer sports betting contracts, escalating a federal dispute that could reshape state and federal gambling oversight
New Jersey has thrown the highest possible legal challenge at the heart of the U.S. prediction market industry, petitioning the Supreme Court to determine whether Kalshi and its competitors can bypass state gambling laws by operating under federal commodity regulations. The move comes just days after a federal court split left the legality of sports event contracts in limbo, with hundreds of billions of dollars in potential wagers hanging in the balance.
The Supreme Court Petition
Attorney General Jennifer Davenport filed a petition for certiorari, asking the Supreme Court to resolve whether the Dodd-Frank Act’s definition of “swap” allows federally registered markets like Kalshi to offer sports bets without state oversight. The petition zeroes in on a single question: does federal registration with the Commodity Futures Trading Commission (CFTC) preempt state authority over sports betting contracts?
Davenport’s filing follows a sharp divide between federal appellate courts. The Third Circuit ruled in April that Kalshi’s sports event contracts qualify as swaps under the Commodity Exchange Act, granting CFTC jurisdiction and allowing Kalshi to operate in New Jersey. But the Ninth Circuit’s recent decision rejected that interpretation, arguing that Congress did not intend to override state gambling laws through a technical definition buried in Dodd-Frank. This direct contradiction forced New Jersey’s hand, making Supreme Court intervention almost inevitable.
How the Legal Battle Escalated
The dispute traces back to early 2025, when Kalshi began offering sports wagering contracts to New Jersey residents. The New Jersey Division of Gaming Enforcement (DGE) responded with cease-and-desist orders to Kalshi and Robinhood, demanding they halt all sports betting activity and void existing wagers. Kalshi countered by suing the state, claiming exclusive federal oversight by the CFTC. A district court sided with Kalshi, granting a temporary injunction that allowed the platform to continue operating while the case moved up the judicial ladder.
After the DGE appealed, the Third Circuit’s 2-1 decision favored Kalshi, but the Ninth Circuit’s ruling last week directly contradicted that outcome. The resulting circuit split is now the central issue before the Supreme Court. The legal question is not just academic—if Kalshi’s interpretation stands, any operator could theoretically sidestep state gambling laws by registering with the CFTC, undermining state regulatory authority nationwide.
What Happens Next for Kalshi and the Industry
The Supreme Court’s process is methodical. Kalshi has 30 days to file an opposition brief, after which New Jersey can respond within 10 days. The justices will then decide whether to take the case, deny it, extend deliberations, or request further analysis from the U.S. Solicitor General. According to gaming law expert John Holden of Indiana University, the Court could add months to the timeline if it seeks additional input, leaving the industry in a prolonged state of uncertainty.
Meanwhile, the regulatory patchwork continues. In Washington state, a judge recently ordered Kalshi to suspend key markets and implement strict geofencing, as reported earlier. These conflicting state and federal actions highlight the stakes for both operators and regulators: a Supreme Court ruling could either cement federal supremacy or reaffirm state control over sports betting, with immediate consequences for how prediction markets operate across the country.
Broader Implications for State and Federal Oversight
If the Supreme Court sides with New Jersey, states would retain the power to regulate or prohibit sports betting contracts, forcing platforms like Kalshi to comply with a patchwork of local laws. If Kalshi prevails, the CFTC could become the de facto national regulator for sports event contracts, effectively sidelining state gaming agencies. The outcome will determine not only the future of prediction markets but also the boundaries of federal and state authority in the rapidly evolving gambling landscape.
New Jersey’s aggressive legal strategy exposes the fragility of the current regulatory framework. By forcing the Supreme Court to confront the ambiguity in federal law, the state is betting that Congress never intended to let a single regulatory loophole upend decades of state-level gambling oversight. The industry’s future now hinges on whether the justices see Kalshi’s model as a legitimate financial innovation or a backdoor around state gambling laws—a distinction that will shape the next era of U.S. sports betting regulation.
To understand the stakes, it’s essential to grasp the difference between a traditional sportsbook wager and a prediction market event contract. While both allow users to stake money on the outcome of sports events, prediction markets like Kalshi operate as federally regulated exchanges, treating these bets as “swaps” under the Commodity Exchange Act. This legal distinction is at the heart of the current dispute: if event contracts are swaps, they fall under CFTC oversight; if they are gambling, states retain control. The Supreme Court’s answer will define the regulatory future for every operator and bettor in the country.
