Kalshi’s lawyers press the federal-only case

The cleanest version of this dispute is also the least glamorous one: who gets the paperwork. In the United States, Kalshi and other prediction-market operators say sports event contracts are derivatives traded on federally regulated exchanges, which would put them under the Commodity Futures Trading Commission and largely out of state gambling regulators’ hands. States and tribal gaming interests answer that when people stake money on a game’s outcome, calling it a swap does not make it stop looking like sports betting.

That jurisdiction fight was the point of a panel at Next Predict Summit in New York, reported by CDC Gaming, where Kalshi litigation chief Javalin Dedaj and outside counsel Josh Sterling argued that state gaming laws should not apply to contracts listed on federally regulated designated contract markets.

The legal hinge is simple enough to say in plain English. If a sports event contract counts as a “swap” under the Commodity Exchange Act, federal law gives the CFTC exclusive authority over that transaction. The industry’s preferred reading stops there. The states’ preferred reading is that Congress did not quietly strip them of their traditional power over gambling just because the wager was routed through a regulated exchange and given a derivatives label.

The reason this has become a live national problem, rather than a law-school argument with better tailoring, is that the appellate courts are not aligned. CDC Gaming notes that the U.S. Court of Appeals for the Third Circuit held in April that Kalshi’s sports event contracts qualify as swaps under the Commodity Exchange Act, blocking New Jersey’s effort to treat them as gambling. The Ninth Circuit, in August, went the other way in Kalshi’s case against Nevada, concluding the contracts are likely not swaps. Then the Sixth Circuit, in a ruling involving Ohio and Tennessee, found that the contracts are swaps but said state gaming laws would likely not be preempted even so.

That third position is the clause everyone was hoping not to read twice. It means a market could win the “we are federally regulated derivatives” argument and still lose the practical freedom to run a single national product. For the companies, that is the expensive version of victory: one federal rulebook plus whatever the states can still demand.

The Supreme Court now has the New Jersey case before it, and Kalshi has until November 9 to file its brief, according to CDC Gaming. The article also says the CFTC has issued a proposed rule that would expressly define event contracts, including sports, political, cultural and weather contracts, as swaps. If that rule is finalized, it would not end the litigation by magic, but it would harden the industry’s textual case that Congress put this business in federal hands.

Sterling’s message on the panel was blunt enough to be useful: operate on the view that the law is on the exchanges’ side and keep building. Dedaj also said Kalshi is continuing to develop new products while the courts sort themselves out. That is not bravado so much as incentive. If the law remains fractured, firms can diversify beyond the products drawing the heaviest state fire, or regionalize offerings where necessary. Regulation, like water, tends to find the lowest opening in the structure.

What has actually been decided so far is narrower than either side would like. No final Supreme Court ruling exists. The federal appeals courts disagree on both classification and preemption. The CFTC has proposed, not finished, a rule. For now, the strongest established fact is that the same contract can look like a federally supervised derivative in one courtroom and a state-regulable wager in another. Institutions call that uncertainty. Markets usually call it an invitation.