New Jersey has asked the U.S. Supreme Court to decide whether states can regulate sports betting offered on prediction markets like Kalshi, setting up a high-stakes clash over who controls a multibillion-dollar industry.
The petition, filed by New Jersey Attorney General Jennifer Davenport, argues that platforms marketing sports wagers nationwide are sidestepping state oversight. “Companies like Kalshi claim to offer legal sports betting in all 50 states, but they refuse to follow the gambling laws of any state,” Davenport said in a statement announcing the action.
At the center of the dispute is whether sports-related event contracts qualify as swaps under federal law. If they do, jurisdiction shifts to the U.S. Commodity Futures Trading Commission (CFTC), effectively removing individual states from the equation. New Jersey contends that treating these wagers as swaps would “federalize the multi-billion-dollar sports betting industry at the expense of every state sports gaming law.”
A Circuit Split Drives the Case Toward the Supreme Court
The legal landscape is fractured. In April, the U.S. Court of Appeals for the 3rd Circuit ruled that New Jersey could not regulate sports bets on prediction markets, finding that such contracts meet the legal definition of swaps and fall under exclusive CFTC oversight. New Jersey calls that decision “profoundly wrong.”
About a week before New Jersey filed its petition, the 9th Circuit reached the opposite conclusion, ruling that Nevada can block Kalshi from allowing sports bets. Those judges determined that wagers labeled as swaps amount to gambling under a different name.
That disagreement between federal appeals courts significantly increases the likelihood that the justices will take up the case. New Jersey’s petition frames the question as one that “will determine whether a multi-billion-dollar gaming industry can suddenly operate free from state sports-gaming laws.” According to the attorney general’s office, this is the first certiorari petition filed with the Supreme Court challenging the legality of this business model, in which Kalshi self-certifies sports wagers with the CFTC rather than complying with state rules.
Twenty States and the Dodd-Frank Question
The stakes extend well beyond New Jersey. According to Davenport’s office, litigation over these issues has broken out in at least 20 states, with dozens of active suits pending and several states’ gambling laws currently enjoined by federal courts.
New Jersey regulates gambling within its borders and bans betting on college sports entirely, but it has been unable to enforce those laws against Kalshi. The petition asks the Supreme Court to decide whether the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 preempts states from regulating sports bets placed within their jurisdictions when those bets run through markets registered with the CFTC.
New Jersey warns of broad consequences if the 3rd Circuit’s reasoning stands. “If Kalshi is right that it can offer sports bets on federal exchanges irrespective of state law, companies can disregard all state sports-gambling statutes with ease, so long as they register with the CFTC,” the petition states.
The core legal question the justices are being asked to answer is whether
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Image: arstechnica.com
