Kalshi Sports Contracts: Gambling or Financial Derivatives?

On September 2, 2026, in New Jersey, Mary Jo Flaherty and Jennifer Davenport v. Kalshi EX, LLC, No.26-299, filed a petition before the US Supreme Court, asking it to decide whether states can regulate sports wagers offered through prediction-market platforms such as Kalshi.

The petition challenges the April 6, 2026, decision of the US Court of Appeals for the Third Circuit, which, by a 2-1 vote, upheld a preliminary injunction in Kalshi’s favour. The Third Circuit reasoned that Kalshi was likely to succeed in showing that its sports-related event contracts qualify as swaps within the Commodity Futures Trading Commission’s (CFTC) exclusive jurisdiction.

The dispute centres on the Commodity Exchange Act (CEA) and the changes the Dodd-Frank Act of 2010 made to it. Dodd-Frank expanded the CEA’s rules for financial derivatives known as “swaps” and gave the CFTC a central role in regulating them. Kalshi argues that its sports contracts fall within those rules, while New Jersey says they are sports bets that should remain subject to state gambling laws.

The dispute started after New Jersey’s gaming authorities sent Kalshi a cease-and-desist letter on March 27, 2025, alleging that its sports-event contracts violated state gambling laws. Kalshi then filed for an injunction in federal court to stop the State from enforcing those laws against it. The District Court granted a preliminary injunction, prompting New Jersey to appeal to the Third Circuit.

In April, the Third Circuit upheld the injunction by a 2-1 majority on the same reasoning. Judge Jane Roth dissented, arguing that the contracts were sports gambling in substance and should remain subject to state regulation.

However, later on August 28, the Ninth Circuit considered a similar dispute involving Nevada and reached the opposite conclusion. It held that Kalshi’s sports-event contracts did not qualify as swaps under the CEA and that federal law was therefore unlikely to pre-empt Nevada’s gaming laws.

The dispute is not just between two states; New Jersey said in its petition that litigation involving Kalshi and other prediction-market platforms has drawn at least 20 states into court proceedings. Further, Kalshi’s business is growing rapidly and was valued at $22 billion in a recent funding round.

Age is another concern, because most sportsbooks require users to be 21 or older, but Kalshi allows people to trade from age 18. A recent report found that users aged 18 to 21 traded about $3.9 billion in sports and parlay-style contracts on the platform this year. Critics say this highlights the gap between Kalshi’s regulation and that of traditional sports betting.

New Jersey has also referred to the Supreme Court’s May 14, 2018, decision in Murphy, Governor of New Jersey v. National Collegiate Athletic Assn.No.16-476, which struck down the federal prohibition on state-authorised sports betting. It argued that allowing prediction-market platforms to offer sports bets without complying with state gambling laws could undermine states’ authority to regulate sports wagering.

The Supreme Court has not yet agreed to hear the case. New Jersey has filed the petition for a writ of certiorari seeking review of the Third Circuit’s decision.