Kalshi has signalled that a forthcoming rewrite of federal regulations could become central to its defence as New Jersey asks the US Supreme Court to resolve a dispute over whether states can regulate sports bets offered through a federally registered exchange.
New Jersey filed its petition on 2 September, after the Third and Ninth Circuits reached conflicting conclusions on the issue. Kalshi has not yet submitted its response to the Supreme Court, with its opposition brief due in about a month, but three of the company’s executives have spent the past week outlining its expected legal position publicly.
Chief executive Tarek Mansour told RotoWire that the Ninth Circuit’s decision, which favoured New Jersey, “added more legal uncertainty than there was before.”
He said the courts broadly agreed on the question of federal pre-emption, with the main dispute being “a more narrow disagreement as to whether swaps can be sports”. Much of the reaction, he added, “centered on Rule 40.11. The Key: There is likely a new rule coming in the next few weeks or the next few months that is going to clarify matters.”
Kalshi’s head of litigation, Jovy Dedaj, made a similar case on X. She said the Ninth Circuit had agreed with the Third Circuit on a fundamental principle, although the Third Circuit had ruled in Kalshi’s favour. In Dedaj’s view, the Ninth Circuit decision “rests, in large part, on an incorrect interpretation of the CEA’s Special Rule.”
Company spokeswoman Dani Lever repeated that argument to Bloomberg Law and CNBC, saying the Ninth Circuit “agreed with that key principle” and that, where it disagreed, it relied on a regulation “that’s in the process of being rewritten.”
The proposed regulation is genuine. In June, the Commodity Futures Trading Commission (CFTC) proposed replacing a blanket prohibition with a case-by-case assessment of whether contracts serve the public interest. Under that approach, sports would be treated as gaming, while most contracts based on game outcomes and player or team performance would remain permissible.
The CFTC has also intervened in state-level legal disputes involving prediction markets. It has filed amicus briefs supporting the markets, argued that it has exclusive jurisdiction and sued states directly over enforcement action against them. CFTC spokesman Zach Fulton told The Block that the Ninth Circuit had misread the relevant statute and regulations.
In a concurrence attached to the Ninth Circuit’s 28 August opinion, Judge Kenneth K. Lee said he did not believe the court needed to decide the statutory issue. He argued that 17 C.F.R. § 40.11 prohibits gaming contracts and that, although the CFTC has proposed changing the rule, “it remains in the books and controls the outcome of this appeal.”
The Third Circuit majority, led by Judge Ryan D. Nelson, took a different approach. It concluded that the contracts were not swaps because they were bets, warning that the alternative interpretation would mean Congress had “hid an elephant in a mousehole.”
Nelson began the opinion by citing Kalshi’s own marketing: “the first app for legal sports betting in all 50 states.” Mansour responded to that point in his RotoWire interview by saying: “If you’re using the word ‘bet’ colloquially, you can bet on stocks. When you buy Tesla stock… you say, ‘I’ll just bet on Tesla.’”
Kalshi must also address arguments it made in earlier litigation. Before moving into sports markets, the company fought the CFTC in the DC Circuit over election contracts. During that case, it accepted that gaming included sports and that an illegal instrument could not be made lawful through a public-interest review. That review is precisely the mechanism proposed in the CFTC’s new rule, and the Ninth Circuit cited Kalshi’s previous position.
New Jersey’s Supreme Court petition is narrower than some reports have suggested. In Flaherty v. KalshiEX LLC, Attorney General Jennifer Davenport asked whether Dodd-Frank “preempted States from regulating sports bets that occur within their jurisdictions if those bets are offered on markets registered with the Commodity Futures Trading Commission”. The question concerns sports betting specifically, rather than event contracts in general.
The filing describes a “direct, acknowledged, and irreconcilable split” between the circuits and says the companies have “already dragged at least 20 States into litigation.”
New Jersey also argues that Dodd-Frank prevents companies from offering swaps away from CFTC-registered markets. If Kalshi’s interpretation is correct, the state says, “then state-licensed sportsbooks that everyone has understood to be legal since Murphy – including at brick-and-mortar casinos – have apparently been violating Dodd-Frank all along.”
It describes the suggested displacement of state gambling laws as an “astonishing” outcome with serious “economic and political consequences.”
John Holden of Indiana University’s Kelley School of Business told SBC Americas that Kalshi is expected to file its opposition within 30 days. New Jersey would then have 10 days to reply, with a Supreme Court conference normally taking place about a month later.
The justices could grant or refuse the petition, ask for it to be considered again, or seek the Solicitor General’s views. Holden said the latter option could add several months and might be appropriate because the CFTC, an administration agency, is already a party of interest supporting Kalshi’s position.
Bank of America has told clients that the Supreme Court might also wait for related cases still pending in other federal circuits.
