New Jersey Attorney General Jennifer Davenport filed a petition with the Supreme Court on Wednesday, asking the justices to determine whether prediction market company Kalshi can offer sports contracts despite state gambling laws.
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 2026 World Cup.
The development comes after two federal appeals courts reached 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?
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. The 9th Circuit reached the opposite conclusion in a decision Friday, setting up a circuit split and prompting New Jersey to ask the Supreme Court to resolve the dispute.
The backstory
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.
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.
The case became messier Friday, when the 9th Circuit reached the opposite conclusion in a case involving Nevada. The court held that the federal law at issue does not supersede states’ gaming laws, directly disagreeing with the 3rd Circuit’s approach.
New Jersey’s petition argues that the disagreement is too consequential to leave unresolved.
“That split has tremendous importance, as it will determine whether a multi-billion-dollar gaming industry can suddenly operate free from state sportsgaming laws,” the petition said.
Circuit splits are a common way for cases to be brought before the high court, but the Supreme Court only hears a fraction of the petitions it receives.
The legal controversy
At its core, the dispute is about federalism and whether Congress intended to strip states of their long-standing authority to regulate gambling when it passed the Dodd-Frank Act, 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, putting them under the exclusive jurisdiction of the Commodity Futures Trading Commission, or whether states can regulate them as gambling.
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 therefore are subject to federal, rather than state, regulation. New Jersey argues that interpretation would effectively federalize the country’s multibillion-dollar sports-betting industry through a single word, “swap,” in the Dodd-Frank Act.
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 nationwide.
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 sportsbooks inside brick-and-mortar casinos, could be violating federal law.
Kalshi’s position has already drawn opposition from 44 states, hundreds of tribes, casinos, public officials, and other groups, according to the petition.
The dispute also comes against the backdrop of the Supreme Court’s 2018 decision in Murphy v. NCAA, which struck down a federal law that broadly prohibited states from legalizing sports betting. The ruling cleared the way for states to decide individually whether and how to allow sports wagering.
“Americans have never been of one mind about gambling, and attitudes have swung back and forth,” Supreme Court Justice Samuel Alito wrote in his Murphy opinion.
New Jersey argues that Kalshi’s position would undermine that framework by creating a system in which sports-gambling laws are effectively the same in every state, regardless of whether a state has chosen to permit, restrict, or regulate sports betting.
“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.
New Jersey’s petition argues that the 3rd Circuit’s decision is not only consequential but legally wrong. New Jersey is now asking the Supreme Court to resolve the dispute before the conflicting rulings produce an even broader patchwork of litigation.
“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.
Kalshi and prediction markets experience explosive growth, but also new legal challenges
The petition said 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.
“The Third Circuit’s profoundly important decision is also profoundly wrong,” New Jersey’s petition argued.