Kalshi is heading toward a potential Supreme Court fight over whether states can regulate sports contracts offered through federally registered prediction markets. New Jersey’s Sept. 2 petition argues that a conflict between federal appeals courts needs to be resolved, while Kalshi has signaled that the dispute may ultimately hinge on a CFTC regulation that is already being rewritten.
- Kalshi’s response to New Jersey’s Supreme Court petition is due within 30 days.
- CEO Tarek Mansour expects the CFTC to clarify Rule 40.11 within the coming weeks or months.
- New Jersey’s petition repeatedly cites Rule 40.11 but does not address the CFTC’s proposed rewrite.
Kalshi Builds Its Case Before Filing Its Brief
Kalshi has not yet submitted its opposition to the Supreme Court, and the company’s formal response is not expected for another month. Nevertheless, three senior representatives have publicly outlined the legal position the prediction-market operator is likely to emphasize.
CEO Tarek Mansour argued in an interview with RotoWire that the Ninth Circuit’s decision, which favored New Jersey, has increased uncertainty rather than resolving the underlying dispute.
His interpretation is that the appellate courts largely agree on the issue of federal preemption but disagree more narrowly over whether sports contracts can qualify as swaps. Mansour also pointed to CFTC Rule 40.11 as a central issue, saying the commission could introduce a new rule within weeks or months that would provide additional clarity.
Kalshi’s head of litigation, Jovy Dedaj, made a similar argument on social media. She said the Ninth Circuit accepted an important principle established by the Third Circuit but reached a different conclusion because of what she described as an incorrect reading of the CFTC’s special rule.
Company spokesperson Dani Lever made essentially the same case in comments to Bloomberg Law and CNBC, arguing that the Ninth Circuit’s disagreement was tied largely to a regulation that the CFTC is already considering changing.
The CFTC Is Already Reworking Rule 40.11
The regulatory change Kalshi is referencing is not merely hypothetical.
In June, the Commodity Futures Trading Commission proposed replacing its broad restriction on gaming-related contracts with a case-by-case public-interest assessment.
Under the proposal, sports contracts would fall within the gaming category, but the CFTC could allow many contracts tied to game outcomes and player-related events if they passed the commission’s review.
The CFTC has also taken an increasingly active role in the broader prediction-market dispute. The agency has filed briefs supporting prediction-market operators in state-level litigation and has challenged certain state enforcement actions, arguing that federal law gives the commission exclusive authority over the relevant markets.
CFTC spokesperson Zach Fulton separately argued that the Ninth Circuit had misinterpreted the applicable federal law.
That creates an unusual situation for the Supreme Court. The regulation at the heart of the appellate disagreement could potentially change while the legal dispute over its meaning is still making its way through the courts.
Ninth Circuit Takes a Different Path
The legal disagreement became particularly clear in the Ninth Circuit’s Aug. 28 decision.
In a separate opinion, Judge Kenneth K. Lee argued that the court did not need to resolve the broader statutory question. In his view, 17 C.F.R. § 40.11 already prohibited gaming contracts, and the fact that the CFTC had proposed changing the regulation did not alter the rule currently in effect.
Because the existing regulation remained operative, Lee concluded that it still controlled the case.
The Third Circuit took a different approach.
Judge Ryan D. Nelson’s majority opinion concluded that the sports contracts at issue did not qualify as swaps because they were fundamentally bets. The opinion also rejected an interpretation of federal law that, in the court’s view, would require assuming that Congress had embedded a major change to state gambling authority without clearly saying so.
The Third Circuit’s decision also highlighted Kalshi’s own marketing language, including its previous description of the platform as the first legal sports-betting app available across all 50 states.
Mansour pushed back against the characterization, arguing that the word “bet” can be used informally in ordinary financial discussions. His example was that someone might say they are “betting on Tesla” when buying the company’s stock.
Kalshi Must Also Address Its Earlier Legal Position
One complication for Kalshi is that its current argument does not exist in isolation from its earlier litigation.
Before expanding into sports contracts, Kalshi was engaged in a separate dispute with the CFTC in the D.C. Circuit concerning election-related contracts.
During that earlier fight, the company acknowledged that gaming included sports and argued that an unlawful contract could not be made permissible through a public-interest review.
That position is particularly relevant now because the CFTC’s proposed regulatory framework would introduce precisely such a review process.
The Ninth Circuit pointed to Kalshi’s previous position in its analysis, creating another issue the company may need to explain as it prepares its Supreme Court response.
New Jersey’s Supreme Court Petition Is Narrower Than the Broader Debate
New Jersey’s petition focuses specifically on sports betting contracts, rather than prediction markets as a whole.
In Flaherty v. KalshiEX LLC, New Jersey Attorney General Jennifer Davenport asked the Supreme Court to consider whether the Dodd-Frank Act prevents states from regulating sports bets offered through markets registered with the CFTC.
New Jersey argues that the Third and Ninth Circuits have created a direct and irreconcilable conflict.
The state also points to the growing number of lawsuits involving prediction-market operators, saying Kalshi and related companies have already pulled at least 20 states into legal disputes.
The petition raises a broader consequence as well.
Dodd-Frank restricts the offering of swaps outside CFTC-registered markets. New Jersey argues that accepting Kalshi’s interpretation could potentially undermine long-standing state-regulated sports-betting systems, including sportsbooks operating inside physical casinos.
The state describes that potential outcome as having significant economic and political consequences because it could effectively displace portions of state gambling law through federal regulation.
What Happens Next at the Supreme Court?
The immediate next step is Kalshi’s response to New Jersey’s petition, which is due within 30 days of the Sept. 2 filing.
New Jersey would then have roughly 10 days to respond to Kalshi’s opposition. The Supreme Court could consider the case at a subsequent conference, where the justices could choose to grant review, reject the petition, postpone consideration, or seek the views of the U.S. solicitor general.
John Holden of Indiana University’s Kelley School of Business said the solicitor general route could add several months to the timeline. That possibility could be particularly relevant because the federal government’s own commodities regulator has already taken positions favorable to prediction markets.
Bank of America has also suggested that the Supreme Court could wait for additional litigation in other federal circuits before deciding whether to take up the dispute.
For Kalshi, that means the company’s Supreme Court strategy may depend on more than the competing appellate decisions. The CFTC’s pending rewrite of Rule 40.11 could materially change the regulatory landscape while the justices are still deciding whether the case belongs before them.
The result could determine not only Kalshi’s ability to offer sports-related contracts, but also how federal commodities regulation interacts with the states’ traditional authority over gambling.
