New Jersey asked the US Supreme Court on Tuesday to resolve a growing fight over prediction markets, filing a petition that could determine whether platforms like Kalshi operate under federal or state authority.
Attorney General Jennifer Davenport and Division of Gaming Enforcement Interim Director Mary Jo Flaherty filed a petition for a writ of certiorari challenging a Third Circuit ruling that favored KalshiEX in April. The state argued that the federal court overstepped by granting the prediction market platform broad immunity from state gambling regulations.
The case, KalshiEX LLC v. Flaherty, centers on whether sports-related event contracts on prediction markets qualify as commodity swaps under federal law or as sports bets subject to state regulation. The federal Commodity Futures Trading Commission classifies them as swaps, while 44 state attorneys general say they amount to sports betting.
Circuit split demands resolution
The petition comes after two federal appeals courts reached opposite conclusions on the same question. The Third Circuit ruled for Kalshi in April, saying the platform’s sports event contracts fall under CFTC jurisdiction and are therefore exempt from state gambling laws. The Ninth Circuit took the opposite view in August, siding with states that argued the contracts are functionally identical to sports bets.
This split is precisely the kind of disagreement the Supreme Court is designed to resolve. Without a unified ruling, prediction markets face a patchwork of conflicting legal standards across the country. Kalshi can operate freely in some jurisdictions while facing potential enforcement actions in others.
New Jersey has particular standing on this issue. The state won the landmark 2018 Supreme Court case Murphy v. NCAA, which struck down the federal ban on sports betting and opened the door for states to legalize and regulate gambling. That ruling was argued by then-Governor Chris Christie, and it fundamentally reshaped the American gambling landscape. New Jersey is now trying to extend that same legal logic to prediction markets.
The core dispute
Kalshi argues that its event contracts are derivatives regulated by the CFTC, not bets. When a user buys a contract on whether a team will win or how many points will be scored, Kalshi says, they are trading a financial instrument that settles based on an observable event. The CFTC approved these contracts in 2024 after initially trying to block them, giving the platform federal regulatory backing.
States counter that the distinction is meaningless. A contract that pays out based on a sports outcome is a bet, regardless of what you call it. The 44 attorneys general who filed a joint brief in July argued that the CFTC has no authority over sports betting, which states have historically regulated and taxed.
The CFTC itself has complicated the picture. In February, it withdrew a proposed event-contract rule and a 2025 sports advisory, leaving the regulatory framework in flux. The agency has not clearly stated whether it intends to assert broader authority over prediction markets or defer to state regulators on this matter. That ambiguity has left both platforms and states guessing about how enforcement will actually work in practice.
Industry implications
If the Supreme Court takes the case, the ruling would have sweeping implications for the prediction market industry, which has grown rapidly since 2024. Kalshi now handles billions of dollars in contracts across politics, economics, weather, and sports. Competitors like Polymarket, which operates offshore, have also expanded into US markets.
The case also directly affects how cryptocurrency exchanges approach prediction market products. Several crypto platforms have launched or are developing event-contract features, and the legal framework will determine whether they can operate nationwide or face state-by-state restrictions. Crypto-native prediction markets like Azuro and Overtime Markets have been watching the case closely.
Tax and regulatory stakes
A Supreme Court ruling could also reshape how states tax prediction market profits. Currently, states that have legalized sports betting impose taxes ranging from 10% to 51% on gross gaming revenue. If prediction markets are classified as swaps, those tax structures would not apply, giving platforms a significant cost advantage over traditional sportsbooks.
That advantage has not gone unnoticed. Major sportsbook operators, including DraftKings and FanDuel, have lobbied against Kalshi’s expansion into sports event contracts, arguing that prediction markets should face the same regulatory burden as sports betting. Kalshi has countered that its products serve a different purpose: price discovery and risk management rather than entertainment gambling.
What comes next
New Jersey’s petition asks the court to hear the case during its current term, which begins in October. A decision to accept the petition would likely come by January, with oral arguments scheduled for spring and a ruling by June. The state argued that the circuit split creates immediate uncertainty for both regulators and market participants, making Supreme Court review urgent.
The broader question is whether federal commodity regulators or state gambling authorities have the final say over a new category of financial products that blur the line between trading and betting. That distinction matters not just for Kalshi, but for every platform hoping to offer event-based contracts to US consumers.
For crypto markets specifically, the ruling could determine whether blockchain-based prediction platforms can serve US users without registering as money transmitters in each state. Current guidance from the Financial Crimes Enforcement Network, issued in 2023, requires such registration for platforms that handle user funds, adding compliance costs that offshore competitors simply avoid by staying outside US jurisdiction entirely.
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