Kalshi sports contracts dispute heads to Supreme Court

New Jersey has asked the U.S. Supreme Court to decide whether federal derivatives law prevents states from regulating sports contracts offered by CFTC-registered prediction markets.

A Sept. 2 court filing shows that New Jersey has petitioned the Supreme Court for a writ of certiorari, asking the justices to review a Third U.S. Circuit Court of Appeals decision that favored Kalshi.

The petition asks whether the Dodd-Frank Wall Street Reform and Consumer Protection Act prevents states from applying their sports-gambling laws to bets made within their borders when the contracts are offered on a market registered with the Commodity Futures Trading Commission.

Kalshi operates a designated contract market overseen by the CFTC. The company treats its sports products as event contracts governed by federal derivatives rules, while New Jersey considers them sports wagers subject to state licensing and consumer-protection requirements.

New Jersey challenges Kalshi’s Third Circuit victory

In April, the Third Circuit upheld preliminary relief that stopped New Jersey regulators from enforcing state gambling laws against Kalshi’s sports contracts.

The appellate court found that Kalshi had shown a reasonable chance of succeeding on its claim that sports event contracts qualify as swaps under the Commodity Exchange Act. Under that interpretation, the CFTC’s exclusive jurisdiction could displace conflicting state requirements.

As crypto.news reported at the time, the decision did not settle the full lawsuit. It affirmed a preliminary injunction, meaning the court assessed Kalshi’s likelihood of success without issuing a final judgment on every part of the dispute.

New Jersey is now asking the Supreme Court to reject the appellate court’s interpretation. According to the petition, Congress did not clearly authorize federally registered markets to offer sports betting across the country without complying with state gambling laws.

State officials also argue that sports wagering has long fallen under state authority. Under New Jersey’s position, registering an exchange with the CFTC does not automatically turn a sports bet into a federally protected financial contract.

The petition challenges the Third Circuit’s treatment of sports event contracts as swaps, a classification central to Kalshi’s federal preemption argument. If the products do not fall within that category, the state contends that the Commodity Exchange Act’s exclusive-jurisdiction provision cannot shield them from local enforcement.

Conflicting Kalshi rulings strengthen the request for review

New Jersey’s filing points to a conflicting decision from the Ninth U.S. Circuit Court of Appeals, which recently allowed Nevada to enforce its gaming laws against prediction market sports contracts.

In the Nevada dispute, the Ninth Circuit found that sports contracts were likely wagers rather than swaps covered by the Commodity Exchange Act. The court rejected the argument that CFTC oversight automatically prevented state regulators from acting.

The Ninth Circuit ruling produced a direct disagreement between two federal appellate courts. Kalshi has protection from New Jersey enforcement under the Third Circuit’s reasoning, while prediction market operators face state gambling controls within the Ninth Circuit.

A split between appellate courts is one factor the Supreme Court considers when deciding whether to hear a case, although the filing does not mean the justices have accepted New Jersey’s petition. Kalshi will have an opportunity to respond before the court decides whether to grant review.

The state cited the Ninth Circuit decision in its petition, arguing that the opposing rulings have created uncertainty over the line between federal derivatives oversight and state gambling regulation.

Similar disputes have already spread to other jurisdictions. In August, a federal judge rejected Coinbase’s request to block Michigan regulators from taking action against sports prediction markets, while New York has separately sued Kalshi over products that state officials describe as unlicensed gambling.

New York’s complaint seeks at least $36 billion in penalties and restitution. The state has accused Kalshi of offering unlicensed wagering products and allowing access without the safeguards required of licensed sportsbooks, allegations that Kalshi disputes.

By mid-August, the state enforcement fight had produced more than 20 lawsuits and cease-and-desist actions across the United States. Arizona had also filed criminal charges, while several other states had ordered prediction market operators to stop offering sports-related products.

Major-questions doctrine enters the Kalshi case

Sports law attorney Daniel Wallach said New Jersey’s petition invokes the major-questions doctrine, which courts use when an agency claims authority over an issue carrying major economic or political consequences without clear direction from Congress.

Quoting earlier Supreme Court language, the state called the Third Circuit’s interpretation an “astonishing” conclusion with grave “economic and political consequences.”

New Jersey also argued that allowing federal derivatives law to displace state sports-gambling rules would represent a “significant change in the sensitive relation between federal and state” power in an area of “traditional state authority.”

Under the state’s argument, Congress would have needed to speak clearly before allowing the CFTC’s authority to override local sports-betting laws. The petition says Dodd-Frank contains no clear statement giving federally registered exchanges nationwide immunity from state gambling controls.

Kalshi offered a different reading in a statement shared with Front Office Sports. The company said the Ninth Circuit still accepted the central principle that the CFTC’s exclusive jurisdiction can preempt state law, while disagreeing over how an existing regulation applies to sports contracts.

According to Kalshi, the regulation behind that disagreement is already being rewritten.

“We remain confident in the lower courts’ rulings, and nothing in New Jersey’s filing today changes our view,” the company said.

The CFTC has proposed changes to its event-contract rules, but any final regulation could face a separate court challenge over the agency’s legal authority or rulemaking process. The Ninth Circuit decision could also give states another basis for contesting a rule that treats sports contracts as federally governed derivatives.

Prediction market valuations continue to climb

While legal challenges have spread across the United States, private investors have continued assigning multibillion-dollar valuations to the largest prediction market platforms.

An Aug. 25 SEC filing showed that Kalshi had sold approximately $1.12 billion in equity since April, with about $380 million left under an offering of nearly $1.5 billion. The filing did not identify which financing rounds were included in the amount already sold.

Kalshi’s recent equity filing may include its $1 billion Series F round, which valued the company at $22 billion. Coatue led that financing with participation from Sequoia Capital, Andreessen Horowitz, IVP, Paradigm, Morgan Stanley, and ARK Invest.

Company figures released around the Series F placed Kalshi’s annualized trading volume at $178 billion, up from $52 billion over six months. Kalshi also reported more than two million monthly users and about $1.5 billion in annualized revenue at the time.

Sports accounted for an estimated 85% to 90% of Kalshi’s trading volume, according to figures discussed during a May prediction market debate at Consensus Miami. The concentration makes the classification of sports contracts material to the company’s U.S. operations.

Rival Polymarket is also seeking new funding. A reported $1 billion round would value the company at approximately $21 billion, with Donald Trump Jr.-linked 1789 Capital planning to invest about $300 million.

Polymarket’s U.S. business operates through QCX LLC, a CFTC-designated contract market acquired by the company. Intercontinental Exchange, the owner of the New York Stock Exchange, remained Polymarket’s largest investor after accumulating an approximately 22% stake, according to the Wall Street Journal.