New Jersey petitions Supreme Court over prediction market ruling

New Jersey just escalated its legal battle against prediction market operator Kalshi to the highest court in the land. The state filed a petition for writ of certiorari on September 2, asking the US Supreme Court to review a Third Circuit ruling that effectively stripped New Jersey of its ability to enforce state gambling laws against the digital marketplace.

The case, Flaherty v. KalshiEX, LLC, sits at the intersection of federalism, financial regulation, and the rapidly growing prediction markets industry.

How we got here

The fight started in 2025 when New Jersey’s Division of Gaming Enforcement accused Kalshi of running unauthorized sports wagering operations in the state. The division issued cease-and-desist orders, arguing that Kalshi’s sports event contracts were functionally indistinguishable from sports bets, which New Jersey regulates under its own gambling laws.

Kalshi saw things differently. The company, which operates as a CFTC-designated contract market, argued that its products are “swaps” governed by the Commodity Exchange Act and its Dodd-Frank amendments. In plain terms: Kalshi claimed its contracts are financial instruments under federal oversight, not sports bets under state jurisdiction.

A federal district court sided with Kalshi and granted a preliminary injunction blocking New Jersey’s enforcement efforts. The Third Circuit then upheld that decision in a 2-1 ruling on April 6, 2026, agreeing that federal law preempts state regulation when it comes to contracts traded on CFTC-designated markets.

The circuit split that changes everything

The Ninth Circuit issued a ruling on August 28 in a separate case involving Nevada that reached the opposite conclusion from the Third Circuit on how to classify sports event contracts. That disagreement between two federal appeals courts, known as a circuit split, is one of the most reliable triggers for Supreme Court review.

Attorney General Jennifer Davenport framed the stakes bluntly, arguing that prediction market providers have been misrepresenting their legal standing by claiming they offer legal sports betting across all states without actually complying with local laws.

What’s actually at stake

At least 20 states have a direct interest in the outcome, and the broader gaming industry it touches is valued in the multiple billions of dollars.

If the Supreme Court affirms the Third Circuit’s reasoning, it would establish a precedent that CFTC-designated contract markets operate in a federal regulatory lane that states cannot touch. States like New Jersey have spent years building regulatory frameworks for sports betting, particularly after the Supreme Court’s landmark 2018 decision in Murphy v. NCAA that struck down the federal ban on state-authorized sports wagering.

If the Court sides with New Jersey instead, prediction market operators would need to comply with state gambling laws wherever they offer sports-linked contracts. That could mean obtaining state licenses, paying state taxes, and adhering to consumer protection requirements that vary widely from jurisdiction to jurisdiction.

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