New Jersey Asks Supreme Court to Decide Whether Kalshi Sports Contracts Are Swaps or Bets

Meta description: New Jersey asks the Supreme Court to review whether Kalshi’s sports contracts fall under federal swaps law or state betting rules.

Tags: Kalshi, CFTC, Supreme Court, New Jersey, Nevada, sports contracts

market_platform: Kalshi

category: Regulation

New Jersey asked the U.S. Supreme Court on September 2, 2026, to decide whether KalshiEX LLC’s sports event contracts are federally regulated swaps or state-regulated bets. The petition in Flaherty v. KalshiEX LLC followed the Ninth Circuit’s August 28 ruling against Kalshi in a Nevada case, creating a direct conflict with the Third Circuit’s April ruling in Kalshi’s favor.

The case puts a central question in the prediction markets industry before the justices: whether a CFTC-registered Designated Contract Market can offer sports-linked event contracts nationwide without complying with state gambling laws. New Jersey says the Commodity Exchange Act does not preempt state sports-betting rules. Kalshi says CFTC oversight gives the exchange exclusive federal protection.

What did New Jersey ask the Supreme Court to decide?

New Jersey’s petition for certiorari, filed by Attorney General Jennifer Davenport and Mary Jo Flaherty, interim director of the New Jersey Division of Gaming Enforcement, asks the Court to review the Third Circuit’s decision in KalshiEX LLC v. Flaherty, No. 25-1922. The petition frames the dispute as a federalism fight over whether Kalshi can avoid state gambling regulation by listing sports contracts on a federally regulated derivatives exchange.

The filing argues that Kalshi markets sports event contracts while declining to follow state gambling laws. New Jersey says the company’s position would let a CFTC-registered exchange convert sports wagering into federally preempted derivatives trading, even in states that regulate or restrict sports betting through separate licensing systems.

Kalshi’s position is the opposite. In court filings and public statements, the company has argued that it operates as a nationwide financial exchange under the Commodity Exchange Act and that allowing each state to apply its own gambling rules would undermine the uniform federal framework Congress created for derivatives markets.

What did the Third Circuit hold in New Jersey?

On April 6, 2026, a divided Third Circuit panel affirmed a preliminary injunction blocking New Jersey from enforcing its gambling laws against Kalshi while the litigation continues. In KalshiEX LLC v. Flaherty, No. 25-1922, Judge David J. Porter wrote for the 2-1 majority that Kalshi’s sports event contracts, when traded on a CFTC-licensed Designated Contract Market, fall within the Commodity Exchange Act’s federal regime.

The Third Circuit majority held that New Jersey’s enforcement effort was likely preempted because the CFTC has exclusive jurisdiction over swaps traded on registered exchanges. Judge Jane R. Roth dissented, leaving the panel split over whether the contracts should be treated as federally protected derivatives or as state-regulated gambling activity.

Because the ruling affirmed a preliminary injunction, it did not end the underlying case. It did, however, let Kalshi keep operating in New Jersey while the dispute proceeds and gave the exchange a major appellate ruling for its broader preemption theory.

What did the Ninth Circuit hold in Nevada?

On August 28, 2026, the Ninth Circuit reached the opposite result in KalshiEX LLC v. Assad, the Nevada case involving Kalshi’s sports contracts. A unanimous three-judge panel dissolved a preliminary injunction that had protected Kalshi from Nevada enforcement, holding that the state could apply its gambling laws to the challenged contracts.

The Ninth Circuit treated the contracts as bets rather than federally insulated swaps for purposes of the preliminary injunction dispute. That holding placed Nevada and New Jersey on opposite sides of the same legal question: whether the Commodity Exchange Act blocks states from enforcing gambling statutes against sports event contracts listed by a CFTC-regulated exchange.

The timing sharpened the split. New Jersey filed its Supreme Court petition five days after the Ninth Circuit ruling, pointing to the conflicting appellate outcomes as a reason for immediate review.

Why does the circuit split matter for prediction markets?

The conflict matters because Kalshi’s legal theory is not limited to one state. If CFTC registration preempts state gambling law for sports event contracts, federally designated exchanges could seek nationwide distribution without obtaining state-by-state sports-betting licenses. If state gambling laws still apply, exchanges listing sports contracts face a fragmented compliance map.

The Third Circuit’s ruling gives Kalshi protection in New Jersey for now. The Ninth Circuit’s ruling removes that protection in Nevada absent a further stay or later ruling. Other states watching the litigation have a practical enforcement question: whether to treat sports-linked contracts as financial products under federal derivatives law, gambling products under state law, or both.

The dispute also affects how other federally regulated prediction-market businesses assess sports contracts. A platform with CFTC designation may be able to list event contracts on elections, economics, entertainment, or other subjects, but sports remains the flashpoint because states already have detailed gambling regimes and licensed sportsbook markets.

New Jersey’s petition says the conflict has pulled at least 20 states into litigation over Kalshi’s contracts. That figure comes from the state’s Supreme Court filing, which has an obvious stake in portraying the issue as nationally urgent, but the procedural point is plain: appellate courts are now divided on a threshold question that determines whether state regulators can move against Kalshi’s sports markets.

How has Kalshi defended its position?

Kalshi has argued that the preemption case is clear because Congress gave the CFTC exclusive jurisdiction over swaps and trading on registered contract markets. The company describes itself as an open, nationwide financial exchange, not a sportsbook, and says state-by-state gambling enforcement would conflict with the federal derivatives system.

That argument has worked in some courts and failed in another. The Third Circuit accepted enough of Kalshi’s theory to keep New Jersey enforcement blocked at the preliminary injunction stage. The Ninth Circuit rejected that approach in Nevada, allowing state enforcement to proceed unless the company obtains further relief.

The split gives both sides concrete appellate authority. New Jersey can point to the Ninth Circuit and argue that state gambling laws remain available against sports contracts. Kalshi can point to the Third Circuit and argue that CFTC regulation preempts those same state-law claims.

What happens next at the Supreme Court?

Kalshi’s response to New Jersey’s certiorari petition is due within 30 days of the September 2 filing, placing the deadline in early October 2026. The Supreme Court could then decide whether to grant review during the October 2026 term, although a grant decision would not be expected before the justices consider the petition at conference.

If the Court grants certiorari, the case would become the leading test of how far CFTC authority reaches over sports event contracts listed by a registered exchange. If the Court denies review, the split between the Third and Ninth Circuits would remain unless later appellate, legislative, agency, or en banc action changes the landscape.

For now, Kalshi can continue operating under the Third Circuit injunction in New Jersey while that case proceeds. In Nevada, the Ninth Circuit’s dissolved injunction leaves the company exposed to state enforcement absent a separate stay. The next milestone is Kalshi’s Supreme Court response in early October 2026.