New Jersey has asked the Supreme Court to hear a case concerning the regulation of online prediction markets, a move that could impact dozens of states grappling with oversight of these platforms. The request follows a split among federal appellate courts on whether states or the federal government hold regulatory authority over such markets.
Last month, the 9th U.S. Circuit Court of Appeals ruled that platforms like Kalshi, which offer contracts based on future events, did not demonstrate that federal regulation supersedes state oversight of sports-related event contracts. This decision contrasted with an April ruling by the 3rd U.S. Circuit Court of Appeals, which sided with Kalshi and found that federal regulators have exclusive oversight of prediction markets, including sports-related contracts.
New Jersey Attorney General Jennifer Davenport stated that the divergence between the circuit courts is of "tremendous importance," as it will determine "whether a multi-billion-dollar gaming industry can suddenly operate free from state sports-gaming laws." New Jersey has a long-standing tradition of regulating sports wagers, with over 100 years of statutory authority.
Prediction market platforms, including Kalshi, argue that their sports-related contracts are not gambling but rather financial derivatives known as swaps. They contend that these instruments fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), a federal agency.
Kalshi spokesperson Dani Lever criticized New Jersey's Supreme Court filing, asserting that Kalshi operates as a nationwide financial exchange that "cannot be regulated by 50 different regulators." Lever pointed to the 3rd Circuit's ruling, which affirmed the CFTC's exclusive jurisdiction, and stated that the 9th Circuit's decision, while differing on a specific regulation under revision, agreed with the core principle of federal preemption. Kalshi expressed confidence in the lower court rulings that favored their position.
This legal battle highlights a broader trend of state officials attempting to regulate or ban prediction markets. In July, a federal court temporarily blocked a ban in Minnesota, with defendants arguing for federal rather than state oversight. New York also filed a lawsuit against Kalshi, alleging its market constitutes illegal gambling. Connecticut followed suit in August, seeking to block what it termed unlicensed sports gambling.
Kalshi maintains that it is regulated as a Designated Contract Market (DCM) by the CFTC, signifying its status as a federal financial exchange. The company has previously faced legal challenges, including a federal judge blocking an Arizona criminal case in April that accused Kalshi of operating an illegal, unlicensed gambling business.