<p class="wp-block-paragraph"><a href="https://www.washingtonexaminer.com/tag/new-jersey/" rel="noopener noreferrer" target="_blank">New Jersey</a> Attorney General Jennifer Davenport filed a petition with the <a href="https://www.washingtonexaminer.com/tag/supreme-court/" rel="noopener noreferrer" target="_blank">Supreme Court</a> on Wednesday, asking the justices to determine whether <a href="https://www.washingtonexaminer.com/tag/prediction-markets/" rel="noopener noreferrer" target="_blank">prediction market</a> company Kalshi can offer sports contracts despite state gambling laws.</p>
<p class="wp-block-paragraph">Kalshi, the most popular prediction market in the United States, allows users to place yes-or-no bets on future events, ranging from the weather in Nevada to the final score of the <a href="https://www.washingtonexaminer.com/tag/world-cup/" rel="noopener noreferrer" target="_blank">2026 World Cup</a>.</p>
<p class="wp-block-paragraph">The development follows two federal appeals courts reaching opposing conclusions on a key question: Should sports contracts offered on Kalshi be considered gambling, which is traditionally regulated by states, or federally regulated financial products?</p>
<p class="wp-block-paragraph">The 3rd U.S. Circuit Court of Appeals ruled in April that Kalshi can offer sports contracts in New Jersey without complying with state gambling laws. Conversely, the 9th Circuit reached the opposite conclusion in a decision on Friday, creating a circuit split and prompting New Jersey to ask the Supreme Court to resolve the dispute.</p>
<h2 class="wp-block-heading" id="h-the-backstory">The backstory</h2>
<p class="wp-block-paragraph">New Jersey was one of the first states to send a cease-and-desist letter to Kalshi in 2025, alleging that the company was illegally offering sports betting in the state.</p>
<p class="wp-block-paragraph">Kalshi responded by suing New Jersey and seeking a preliminary injunction to prevent the state from enforcing its gambling laws against the company. A federal district court granted Kalshi’s request, and the 3rd Circuit affirmed the decision in April, finding that federal law preempts New Jersey’s sports-gambling regulations.</p>
<figure class="wp-block-image size-large"><img alt="A phone displays crypto trades on Kalshi" class="wp-image-4580293" height="682" src="https://www.washingtonexaminer.com/wp-content/uploads/2026/05/AP26106782935927.jpg?w=696" width="1024" /><figcaption class="wp-element-caption">A phone displays crypto trades on Kalshi on Thursday, April 16, 2026, in Portland, Ore. (AP Photo/Jenny Kane)</figcaption></figure>
<p class="wp-block-paragraph">The case became more complex on Friday when the 9th Circuit reached the opposite conclusion in a case involving <a href="https://www.washingtonexaminer.com/tag/nevada/" rel="noopener noreferrer" target="_blank">Nevada</a>. The court held that the federal law at issue does not supersede states’ gaming laws, directly disagreeing with the 3rd Circuit’s approach.</p>
<p class="wp-block-paragraph">New Jersey’s petition argues that the disagreement is too significant to leave unresolved.</p>
<p class="wp-block-paragraph">“That split has tremendous importance, as it will determine whether a multi-billion-dollar gaming industry can suddenly operate free from state sports-gambling laws,” the <a href="https://www.njoag.gov/ag-davenport-scotus-must-resolve-states-authority-to-regulate-sports-gambling-on-prediction-markets/" rel="noopener noreferrer" target="_blank">petition said</a>.</p>
<p class="wp-block-paragraph">Circuit splits are a common way for cases to be brought before the Supreme Court, but the court only hears a fraction of the petitions it receives.</p>
<h2 class="wp-block-heading" id="h-the-legal-controversy">The legal controversy</h2>
<p class="wp-block-paragraph">At its core, the dispute involves <a href="https://www.washingtonexaminer.com/tag/federalism/" rel="noopener noreferrer" target="_blank">federalism</a> and whether <a href="https://www.washingtonexaminer.com/tag/congress/" rel="noopener noreferrer" target="_blank">Congress</a> intended to strip states of their long-standing authority to regulate gambling when it passed the <a href="https://www.washingtonexaminer.com/tag/dodd-frank-act/" rel="noopener noreferrer" target="_blank">Dodd-Frank Act</a>, which expanded federal regulatory oversight over “event contracts” in 2010. The question centers on whether Kalshi’s event contracts qualify as “swaps” or other derivatives under the federal Commodity Exchange Act, placing them under the exclusive jurisdiction of the Commodity Futures Trading Commission, or whether states can regulate them as gambling.</p>
<p class="wp-block-paragraph">Federal law defines swaps broadly as contracts in which parties exchange value based on the outcome of an underlying event. Kalshi argues that its sports contracts fall within that definition and are therefore subject to federal, rather than state, regulation. New Jersey contends that this interpretation would effectively federalize the country’s multibillion-dollar sports-betting industry through a single word, “swap,” in the Dodd-Frank Act.</p>
<p class="wp-block-paragraph">The state warned that if Kalshi can legally offer sports bets nationwide simply by operating on a CFTC-registered exchange, companies could bypass state sports-gambling laws across the country.</p>
<p class="wp-block-paragraph">The implications could extend beyond prediction markets. Dodd-Frank generally prohibits swaps from being offered outside CFTC-registered markets. New Jersey argues that if sports bets qualify as swaps, traditional sportsbooks that operate under state licenses, including those within brick-and-mortar casinos, could be violating federal law.</p>
<p class="wp-block-paragraph">Kalshi’s position has already drawn opposition from 44 states, hundreds of tribes, casinos, public officials, and other groups, according to the petition.</p>
<p class="wp-block-paragraph">The dispute also arises in the context of the Supreme Court’s 2018 decision in <em><a href="https://www.washingtonexaminer.com/premium/4693714/prediction-markets-grow-but-face-legal-challenges/" rel="noopener noreferrer" target="_blank">Murphy v. NCAA</a></em>, which struck down a federal law that broadly prohibited states from legalizing sports betting. The ruling allowed states to decide individually whether and how to permit sports wagering.</p>
<p class="wp-block-paragraph">“Americans have never been of one mind about gambling, and attitudes have swung back and forth,” Supreme Court Justice <a href="https://www.washingtonexaminer.com/tag/samuel-alito/" rel="noopener noreferrer" target="_blank">Samuel Alito</a> wrote in his <em>Murphy</em> opinion.</p>
<p class="wp-block-paragraph">New Jersey argues that Kalshi’s position would undermine that framework by creating a system in which sports-gambling laws are effectively uniform across all states, regardless of individual state decisions regarding sports betting.</p>
<p class="wp-block-paragraph">“In January 2025, Kalshi began offering sports bets on its exchange,” the petition said, citing wagers on events such as which teams will advance in NCAA March Madness and which player will win the U.S. Open.</p>
<p class="wp-block-paragraph">New Jersey’s petition asserts that the 3rd Circuit’s decision is not only significant but legally incorrect. New Jersey is now asking the Supreme Court to resolve the dispute before the conflicting rulings lead to a broader patchwork of litigation.</p>
<p class="wp-block-paragraph">“This petition presents an ideal vehicle for resolving the important question whether States are prevented from regulating sports gambling merely because that gambling happens on a CFTC-registered market,” the state argued.</p>
<p class="wp-block-paragraph">The petition stated that the issue carries “tremendous practical and legal consequence” because Kalshi’s interpretation could effectively federalize the multibillion-dollar sports-betting industry and displace state gambling laws nationwide.</p>
<p class="wp-block-paragraph">“The Third Circuit’s profoundly important decision is also profoundly wrong,” New Jersey’s petition concluded.</p>