New Jersey has asked the US Supreme Court to decide whether federal derivatives law prevents states from regulating sports contracts offered by prediction markets registered with the Commodity Futures Trading Commission (CFTC).
Court filings dated 2 September show that the state has petitioned the justices for a writ of certiorari, seeking a review of a decision by the Third US Circuit Court of Appeals that favoured Kalshi.
The case centres on whether the Dodd-Frank Wall Street Reform and Consumer Protection Act allows states to apply their sports-gambling laws to bets placed within their borders when those contracts are offered through a market registered with the CFTC.
Kalshi operates a designated contract market overseen by the federal regulator. It describes its sports products as event contracts covered by federal derivatives rules. New Jersey, however, says the products are sports wagers and should be subject to state licensing requirements and consumer-protection laws.
In April, the Third Circuit upheld preliminary relief preventing New Jersey regulators from enforcing the state’s gambling laws against Kalshi’s sports contracts.
The appeals court concluded that Kalshi had demonstrated a reasonable prospect of succeeding with its argument that sports event contracts qualify as swaps under the Commodity Exchange Act. If that interpretation is ultimately accepted, the CFTC’s exclusive jurisdiction could override conflicting state requirements.
The April ruling did not resolve the entire lawsuit. It confirmed a preliminary injunction, meaning the court considered Kalshi’s likelihood of success at that stage rather than issuing a final judgment on every issue in the dispute.
New Jersey is asking the Supreme Court to reject the Third Circuit’s interpretation. The state argues that Congress did not clearly authorise federally registered markets to offer sports betting nationwide without complying with individual states’ gambling laws.
State officials also maintain that sports wagering has traditionally been regulated by the states. In their view, registering an exchange with the CFTC does not automatically transform a sports bet into a federally protected financial contract.
The petition challenges the classification of Kalshi’s sports event contracts as swaps, which is central to the company’s argument that federal law pre-empts state regulation. New Jersey says that if the products are not swaps, the Commodity Exchange Act’s exclusive-jurisdiction provision cannot protect them from enforcement by state authorities.
The state has pointed to a conflicting decision from the Ninth US Circuit Court of Appeals, which recently allowed Nevada to apply its gaming laws to sports contracts offered through prediction markets.
In that case, the Ninth Circuit found that the contracts were likely wagers rather than swaps covered by the Commodity Exchange Act. It rejected the argument that CFTC supervision automatically prevented states from taking action.
The differing decisions have created a direct split between two federal appeals courts. Kalshi is protected from enforcement by New Jersey under the Third Circuit’s reasoning, while prediction-market operators remain subject to state gambling controls in the Ninth Circuit.
A disagreement between federal appellate courts is one factor the Supreme Court considers when deciding whether to hear a case. However, New Jersey’s filing does not mean the justices have agreed to review it. Kalshi will be able to respond before the court decides whether to grant the petition.
New Jersey says the conflicting rulings have created uncertainty about where federal derivatives oversight ends and state gambling regulation begins. It also argues that allowing federal law to displace state sports-betting rules would amount to a major change in the balance of power between Washington and the states in an area traditionally controlled locally.
Sports law attorney Daniel Wallach said the petition invokes the major-questions doctrine. Courts use that doctrine when an agency claims authority over an issue with major economic or political consequences without clear instruction from Congress.
Quoting previous Supreme Court language, New Jersey described the Third Circuit’s interpretation as an “astonishing” conclusion with grave “economic and political consequences”.
The state says Congress would have needed to make its intention explicit before permitting the CFTC’s authority to override local sports-betting laws. Its petition argues that Dodd-Frank contains no clear statement granting federally registered exchanges nationwide immunity from state gambling controls.
Kalshi has offered a different interpretation. In a statement shared with Front Office Sports, the company said the Ninth Circuit had still accepted the central principle that the CFTC’s exclusive jurisdiction can pre-empt state law, while disagreeing about the application of an existing regulation to sports contracts.
Kalshi also said that regulation 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 amendments to its rules governing event contracts. Any final regulation could face a separate legal challenge over the agency’s authority or the process used to introduce it. The Ninth Circuit’s decision may also provide states with another argument against a rule treating sports contracts as federally governed derivatives.
The legal dispute involving Kalshi is part of a wider US battle over sports prediction markets. In August, a federal judge rejected Coinbase’s request to stop Michigan regulators from taking action against sports prediction markets. New York has separately sued Kalshi over products it describes as unlicensed gambling.
New York is seeking at least $36bn in penalties and restitution. The state has accused Kalshi of offering unlicensed wagering products and allowing people to use them without the safeguards required of licensed sportsbooks. Kalshi disputes those allegations.
By the middle of August, more than 20 lawsuits and cease-and-desist actions had been brought against prediction-market operators across the United States. Arizona had filed criminal charges, while several other states had ordered operators to stop offering sports-related contracts.
Despite the legal challenges, private investors have continued to place multibillion-dollar valuations on the largest prediction-market companies.
An SEC filing dated 25 August showed that Kalshi had sold approximately $1.12bn in equity since April. About $380m remained available under an offering of almost $1.5bn. The filing did not specify which financing rounds were included in the amount already sold.
The latest equity filing may include Kalshi’s $1bn Series F funding round, which valued the company at $22bn. Coatue led the investment, with Sequoia Capital, Andreessen Horowitz, IVP, Paradigm, Morgan Stanley and ARK Invest also taking part.
Figures released around the Series F round put Kalshi’s annualised trading volume at $178bn, compared with $52bn six months earlier. The company also reported more than two million monthly users and annualised revenue of about $1.5bn at the time.
Sports contracts represented an estimated 85% to 90% of Kalshi’s trading volume, according to figures discussed during a prediction-market debate at Consensus Miami in May. That dependence makes the legal classification of sports contracts particularly important to the company’s US business.
Rival Polymarket is also seeking fresh investment. A reported $1bn funding round would value the company at about $21bn, with Donald Trump Jr.-linked 1789 Capital planning to invest around $300m.
Polymarket’s US operation runs through QCX LLC, a CFTC-designated contract market acquired by the company. Intercontinental Exchange, which owns the New York Stock Exchange, remained Polymarket’s biggest investor after building an approximately 22% stake, according to the Wall Street Journal.
