New Jersey regulates gambling and strictly prohibits betting on college sports, but the state has struggled to enforce those laws against Kalshi. In its petition, New Jersey asked the U.S. Supreme Court to decide whether the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 prevents states from regulating sports betting conducted within their borders when those wagers are offered through markets registered with the Commodity Futures Trading Commission (CFTC).
“If Kalshi is correct that sports betting can be offered on federally regulated exchanges without regard to state law, companies could bypass state sports betting regulations simply by registering with the CFTC,” New Jersey argued in its petition. The state described the Third Circuit’s ruling as “grossly erroneous” and urged the Supreme Court to review the decision.
Could sports betting qualify as a swap?
At the center of the legal dispute is whether sports betting falls within the federal definition of a “swap.” The Dodd-Frank Act amended the Commodity Exchange Act, granting the CFTC exclusive jurisdiction over swaps. Federal law defines a swap as “any agreement, contract, or transaction providing for a purchase, sale, payment, or delivery that is dependent on the occurrence or extent of the occurrence of an event or contingency with respect to its potential financial, economic, or commercial consequences.”
Courts have reached different conclusions about whether sporting events qualify as events with financial, economic, or commercial consequences. In a Third Circuit opinion, the court noted that “the outcome of a sporting event can certainly be associated with potential financial, economic and commercial impacts.” The ruling cited the many affected stakeholders, including sponsors, advertisers, television networks, sports franchises, and local and national communities.
The Trump administration has supported Kalshi in its dispute with state regulators, while the CFTC has filed separate lawsuits seeking to prevent states from regulating prediction markets. Donald Trump Jr. has served as an strategic adviser to Kalshi and has also been linked to investments involving Polymarket through his venture capital firm. Reports indicate that the firm invested in Polymarket.
Although the Trump administration has prevailed in several cases before the current Supreme Court, its conservative majority does not guarantee that states will lose the fight over sports betting and prediction-market regulation. The three Ninth Circuit judges who unanimously ruled against Kalshi were all appointed by President Trump.
Source: arstechnica.com