New Jersey asked the Supreme Court on Wednesday to overturn a Third Circuit ruling that favored prediction market operator Kalshi, teeing up a decision on whether sports contracts traded on federally regulated exchanges can escape state gambling laws. The petition landed days after a federal appeals court ruled against Robinhood on the same question, leaving the brokerage exposed on a business that generated $156 million in Q2 revenue.According to Reuters, New Jersey argues that Kalshi’s interpretation of federal commodities law produces an unlikely result. If sports bets are federally regulated swaps, Dodd-Frank generally requires them to trade through regulated derivatives markets. That would mean state-licensed sportsbooks such as DraftKings and FanDuel have “apparently been violating Dodd-Frank all along,” the state wrote in its petition.
Courts split on the same question
The legal backdrop is a genuine appeals-court split. The Third and Ninth Circuits have reached opposite conclusions on whether sports event contracts are “swaps” under the Commodity Exchange Act, which is the type of conflict the Supreme Court often uses to decide whether to take a case.Polymarket traders currently put the chance of the court accepting a sports-event-contract case by December 31 at about 45 percent. The market measures only whether the court takes a case, not which side would win.On Friday, the Ninth Circuit ruled against Robinhood directly, finding its sports contracts were not swaps under federal commodities law and allowing Nevada to apply its gambling laws. Robinhood said it plans to appeal. The company has warned investors that adverse rulings could force it to stop offering some event contracts in certain states.
Why the stakes are high for Robinhood
Robinhood’s prediction markets hub, built on a partnership with Kalshi, has become the company’s second-largest transaction-based revenue line behind options. The $156 million it earned from event contracts in the second quarter shows how much of the business now depends on the federal preemption argument holding up.The fight spans the country. According to a National Conference of State Legislatures tracker, more than 20 lawsuits and cease-and-desist actions are pending from state attorneys general, gaming regulators and tribal governments. Nevada, Maryland, Massachusetts, Ohio and New Jersey are among the most active, and a 38-state coalition backed Maryland’s position in a December amicus brief.
| State | Action | Status |
|---|---|---|
| Nevada | Federal court ruled sports parlay-style contracts fall under state gaming law | Stay pending appeal |
| Massachusetts | Attorney general sued Kalshi, won partial injunction | Only state with an injunction so far |
| Maryland | Cease-and-desist, backed by 38 states | Pending |
| Ohio | Enforcement action, Kalshi counter-sued | Active litigation |
Kalshi’s defense
Kalshi maintains that it is “an open, nationwide financial exchange” that “cannot be regulated by 50 different regulators,” a spokeswoman said. The company points out that its contracts trade on a designated contract market overseen by the Commodity Futures Trading Commission, not a casino license.The Trump administration’s CFTC has sided with the platforms, suing states including Illinois, Arizona and Connecticut to block state-level regulation. The Justice Department joined a suit against Minnesota after it passed the nation’s first outright prediction market ban, a felony offense under that state’s law.
“Congress never intended a Wall Street reform law to turn ordinary sports betting into federally regulated derivatives,” New Jersey argued in its petition.
For the industry, the economics explain the persistence. Sports contracts account for an estimated 75 to 90 percent of Kalshi’s volume, and roughly 90 percent of its revenue, according to filings cited by Wisconsin’s Department of Justice in its own suit against the platforms. Robinhood, Coinbase, Polymarket and Crypto.com all face similar complaints there.A ruling either way would reshape the sector. If the Supreme Court takes the case, resolution could stretch into 2027. If it declines, the circuits remain split and platforms like Robinhood will keep fighting state by state, with real risk of losing access to some of the largest betting markets in the country.
discussion