New Jersey has submitted a request to the U.S. Supreme Court to clarify whether prediction markets can offer sports-related contracts without complying with state gambling laws, bringing the dispute over federal versus state jurisdiction before the justices.

The core issue is whether sports event contracts traded on designated contract markets registered with the Commodity Futures Trading Commission (CFTC) fall under the swaps regulated exclusively by federal law under the Commodity Exchange Act, or if they are essentially equivalent to sports betting and thus subject to state law. Kalshi argues that a national financial exchange cannot accept fifty different state regulations; New Jersey contends that Congress did not implicitly exempt the sports betting industry from state law.

The Third Circuit Court of Appeals ruled 2-1 in April this year that Kalshi's sports event contracts are swaps and that New Jersey's gambling enforcement agency cannot halt them under state law. Conversely, the Ninth Circuit Court of Appeals ruled on August 28 that sports event contracts are closer to sports betting rather than swaps, allowing Nevada to enforce its gambling laws, resulting in a clear split among the circuit courts.

New Jersey cites the 2018 Murphy v. NCAA case, emphasizing that if Congress does not directly regulate sports betting, states can decide for themselves. Kalshi, on the other hand, packages its products as derivatives traded in federally licensed venues. Opponents argue that its contracts are nearly indistinguishable from sports betting products like DraftKings and FanDuel. Related lawsuits in the Tenth and Sixth Circuits are still ongoing, with dozens of parallel cases across the country.

As a result, similar contracts may be subject to different rules in different jurisdictions: they may be treated as federal swaps in one place while being handled as unlicensed gambling by state regulators in another. Liquidity will be segmented by residence and circuit, with local politics and event lines facing the first pressures.

Mechanically, this is driven by judicial rather than market forces: platforms and market makers buy into a nationally unified entry, while state governments and licensed sports betting operators are focused on taxes and license rents. Funds are temporarily retained in jurisdictions protected by injunctions, slowing the opening of new betting lines. Beneficiaries are platforms that hold CFTC-designated contract market licenses and can withstand multi-state litigation; those under pressure are traditional operators reliant on state gambling taxes and exclusive licenses, as well as national liquidity pools that cannot segment their order books by state.

The Supreme Court has yet to decide whether to hear the case. If it does, the ruling window typically falls before the end of the next term; if not, the split standard will continue to segment the market geographically.

Source: Public Information