New Jersey Asks Supreme Court to Decide Kalshi Prediction Market Dispute

It's official: New Jersey has asked the U.S. Supreme Court to decide whether the Commodity Futures Trading Commission's authority over prediction markets and event contracts preempts states' efforts to enforce their own gambling laws against Kalshi. 

This comes after the United States Court of Appeals for the Ninth Circuit rejected the Third Circuit's ruling in favor of Kalshi. Thus, this creates a conflict between federal appellate courts. 

“Companies like Kalshi claim to offer legal sports betting in all 50 States, but they refuse to follow the gambling laws of any State,” NJ Atty. Gen. Jennifer Davenport said in a release. “These companies have no right to offer their sports bets without following state law, which is why dozens of States across the ideological spectrum have opposed them. States have long adopted careful laws to regulate gambling, including to prevent compulsive gambling, gambling by minors, and insider trading on sports games. We’re calling on the Supreme Court to resolve this issue and recognize that Congress did not silently make the sports-betting industry immune from state law.”

New Jersey Argues Kalshi Must Follow State Gambling Laws

On one side, New Jersey argues that Kalshi's sports contracts are unlicensed gambling products, whereas Kalshi and the CFTC argue that contracts are federally regulated swaps. 

In April, the Third Circuit ruled that sports event contracts are swaps and found that the Commodity Exchange Act preempts New Jersey from applying its laws. 

That ruling upheld a preliminary injunction allowing Kalshi to continue operating in New Jersey. 

Instead of another hearing with the Third Circuit, New Jersey asked the Supreme Court for extra time to prepare a certiorari petition, and Justice Samuel Alito granted extensions that pushed the deadline to Sept. 3. 

Ninth Circuit Ruling Creates Federal Court Split

However, on Aug. 28, the Ninth Circuit ruled in Nevada's favor against Kalshi, allowing Nevada to apply its gambling laws. As part of that, Nevada cited North Carolina's prediction market tax law. As a result, the Ninth Circuit rejected the Third Circuit's ruling. They cited the CFTC's Rule 40.11, which involves exchanges not listing contracts involving gaming. 

The Supreme Court isn't forced to accept the petition from New Jersey; however, with the Ninth and Third Circuits at odds, there's a good chance they may intervene. 

This could have widespread ramifications beyond New Jersey. 

From here, we wait to see if the Supreme Court will take the case.