New Jersey Asks Supreme Court to Decide Whether Federal Law Shields Kalshi Sports Contracts From State Gambling Rules

Meta description: New Jersey asks the Supreme Court whether Kalshi sports contracts preempt state gambling laws after split appellate rulings.

Tags: Kalshi, CFTC, New Jersey, Supreme Court, Rule 40.11, Nevada

market_platform: Kalshi

category: Regulation

New Jersey asked the U.S. Supreme Court on September 2 to decide whether federal commodities law blocks states from enforcing gambling rules against Kalshi’s sports event contracts. The petition follows a Third Circuit win for Kalshi, an August Ninth Circuit loss in Nevada, and a pending CFTC proposal to revise Rule 40.11.

What is New Jersey asking the Supreme Court to decide?

New Jersey’s petition for a writ of certiorari asks whether the Commodity Exchange Act, as amended by Dodd-Frank, preempts state sports-wagering and consumer-protection laws when a sports event contract trades on a CFTC-registered designated contract market. The dispute began after New Jersey regulators told Kalshi that its sports-related event contracts violated state gambling law. Kalshi sued to block enforcement, arguing that its contracts are federally regulated swaps.

The legal question is narrow in form and large in consequence: whether states retain gambling-law authority over sports contracts when those contracts are listed by a federally regulated derivatives exchange. New Jersey frames the products as sports wagers subject to state licensing and consumer-protection rules. Kalshi frames them as event contracts governed by the CFTC’s exclusive jurisdiction over designated contract markets.

The filing came after New Jersey obtained extensions from Justice Samuel Alito in Supreme Court application No. 25A1465, where the Supreme Court docket shows the time to file a certiorari petition was extended to September 3. New Jersey filed one day before that deadline, using the recent split between federal appeals courts as the main reason for Supreme Court review.

What did the Third Circuit rule in New Jersey?

The U.S. Court of Appeals for the Third Circuit affirmed a preliminary injunction in Kalshi’s favor on April 6 in KalshiEX LLC v. Flaherty, No. 25-1922. The injunction blocks New Jersey from enforcing state gambling laws against Kalshi’s sports-related event contracts while the underlying case continues.

The Third Circuit held that Kalshi had shown a reasonable chance of success on its preemption claim because the Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps traded on CFTC-licensed designated contract markets. The court treated Kalshi’s sports event contracts as swaps and said New Jersey’s threatened enforcement would interfere with federally regulated trading on a designated contract market.

The panel also concluded that the district court did not abuse its discretion in finding irreparable harm and in balancing the public-interest factors in Kalshi’s favor. The ruling did not decide the final merits of the case. It preserved Kalshi’s ability to offer the contracts in New Jersey while litigation proceeds.

For the prediction-markets industry, the Third Circuit opinion supplied a powerful preemption theory. If a sports event contract is a swap on a CFTC-registered exchange, state gambling enforcement may be displaced by federal commodities law. New Jersey is asking the Supreme Court to reject that theory before it becomes a broader shield for sports event contracts.

What did the Ninth Circuit say about Nevada?

The Ninth Circuit reached the opposite practical result on August 28 in KalshiEX, LLC v. Assad, No. 25-7516. The court affirmed in part a district court order dissolving a preliminary injunction that had protected Kalshi from Nevada gaming enforcement, leaving Nevada regulators able to enforce state law against Kalshi’s sports-related contracts.

The Ninth Circuit read the Commodity Exchange Act and CFTC Rule 40.11 differently from the Third Circuit. It concluded that Kalshi had not shown a likelihood that the CEA preempts Nevada’s gaming regulations as applied to the sports event contracts. The panel said the contracts were not swaps under the relevant statutory definition because they were sports bets, and it pointed to Rule 40.11’s treatment of event contracts involving gaming.

The caption matters because the case is not KalshiEX LLC v. Nevada Resort Association. The published Ninth Circuit caption is KalshiEX, LLC v. Assad. The Nevada Resort Association appeared as an intervenor-defendant-appellee, according to the Ninth Circuit docket and opinion.

Judge Kenneth K. Lee wrote separately that the statutory question did not need to be resolved at this stage because 17 C.F.R. § 40.11 currently bars gaming contracts. That point is now central to both sides’ timing arguments. New Jersey can point to the existing rule as a reason the Supreme Court should resolve the split. Kalshi can point to pending CFTC rulemaking as a reason the regulatory backdrop may change.

How could the CFTC rewrite Rule 40.11?

The CFTC’s pending rulemaking gives Kalshi a second path outside the Supreme Court, but it does not automatically approve sports contracts. On June 10, the agency published Release No. 9249-26, a notice of proposed rulemaking seeking comment on amendments to Regulation 40.11 and the addition of Appendix F to Part 40.

Current Rule 40.11 already contains a review process for event contracts based on excluded commodities that involve enumerated activities, including gaming. The 2026 proposal would amend and clarify that framework. According to the CFTC’s release, the proposal would establish a structured way to evaluate whether contracts involve activities listed in Section 5c(c)(5)(C) of the Commodity Exchange Act, including terrorism, assassination, war, gaming, or unlawful conduct, and whether such contracts are contrary to the public interest.

The agency said the proposal sets out a 90-day review process with procedural protections, public-interest factors for contract-by-contract review, and definitions of key terms including “involve” and “gaming.” The proposal is narrower than the 2024 CFTC event-contract proposal, which would have treated broader categories of event contracts involving enumerated activities as contrary to the public interest.

For Kalshi, the timing matters because the Ninth Circuit leaned heavily on the current version of Rule 40.11. If the CFTC finalizes a materially different rule, future courts may have to analyze the preemption question against a changed regulatory record. If the agency does not act first, New Jersey’s petition remains the clearest vehicle for Supreme Court review of the Third Circuit’s preemption holding.

What is Kalshi saying about the timing?

Kalshi is trying to turn the rulemaking calendar into part of the legal argument. The company’s position is that the circuit split rests partly on a regulation the CFTC is already revisiting, which could make immediate Supreme Court review less attractive if the agency acts before the justices decide whether to take the case.

Kalshi chief executive Tarek Mansour made that point in a September 2 interview with RotoWire. Speaking after the Ninth Circuit’s Nevada ruling, Mansour said a new CFTC rule could come in the “next few weeks or next few months.” That statement reflects Kalshi’s view of the regulatory calendar, not a binding agency deadline.

The timing issue cuts both ways. A final CFTC rule could narrow the legal question or change the terms of the preemption fight. Until then, the Ninth Circuit’s point remains direct: the current version of Rule 40.11 is still in force. New Jersey and other state regulators can argue that the Supreme Court should decide the question based on the law and regulation now governing the market.

Why does this matter beyond Kalshi?

The case is the most direct Supreme Court test yet of whether sports event contracts can use federal commodities regulation to avoid state gambling enforcement. A ruling for New Jersey would give states a stronger template for applying gambling statutes to federally listed sports contracts. That would affect Kalshi directly and could shape the compliance strategy of other exchanges, brokerages, and sportsbook-linked companies considering event-contract products.

A ruling for Kalshi would strengthen the argument that federal derivatives law controls the category when contracts trade on CFTC-registered markets. That outcome would limit state gaming regulators’ leverage over federally listed sports event contracts, even in states where traditional sports betting remains tightly licensed or restricted.

The CFTC rulemaking creates a third route. If the agency finalizes a revised Rule 40.11 before the Supreme Court acts, the justices could face a changed administrative record and a less settled vehicle for deciding the statutory preemption issue. If the agency does not act first, New Jersey’s September 2 petition will remain the main request for a national answer to the split between the Third and Ninth Circuits.

The next concrete milestone is the Supreme Court’s treatment of New Jersey’s petition. Separately, the CFTC’s June 10 proposed amendments to Rule 40.11 must still move through the agency process before they can become a final rule.