New Jersey filed a petition with the Supreme Court on September 2 asking the justices to decide whether states or the federal government should regulate sports betting on prediction markets, directly challenging a federal appeals court ruling that granted the CFTC exclusive jurisdiction.
The petition in Flaherty v. KalshiEX seeks to overturn an April decision by the Third Circuit Court of Appeals that barred states from regulating prediction market sports bets. That ruling effectively handed the CFTC sole regulatory power over platforms like Kalshi, which allows users to wager on election outcomes and other events. New Jersey argued the Third Circuit misinterpreted federal law and invaded states' traditional authority over gambling.
The case centers on a narrow but consequential gap in U.S. law. The Commodity Exchange Act, which governs futures markets, exempts certain prediction markets from CFTC oversight. But the Professional and Amateur Sports Protection Act, a 1992 law that bans most sports betting, contains ambiguous language about whether prediction markets fall under its restrictions. The Third Circuit read PASPA to mean only the federal government can regulate sports betting on prediction markets; New Jersey argues PASPA allows states to do so, as they do with conventional sports betting after the Supreme Court struck down the federal ban in 2018.
Kalshi, a platform backed by Sam Bankman-Fried's exchange Alameda Research, has been at the center of this dispute. The platform operates binary options on elections, political events and other outcomes, with users betting real money on results. The company has fought regulators on multiple fronts: the CFTC sued to shut it down; the exchange also faces litigation from the SEC, which argues prediction markets on political events should fall under securities law.
New Jersey's petition is the first state request for Supreme Court review of prediction market regulation. The timing coincides with broader uncertainty about how the incoming administration will treat crypto regulation. The petition does not ask the Court to overturn PASPA itself but to clarify that states retain concurrent authority to set their own rules. A Supreme Court grant would land the case on a docket already crowded with cryptocurrency and financial regulation questions.
The Court receives thousands of petitions annually and accepts fewer than 100. The justices typically wait until a case has percolated through lower courts across multiple circuits before intervening. Flaherty v. KalshiEX remains the only appellate ruling on prediction market regulation, which may work against New Jersey's odds for review. If the Court declines, the Third Circuit ruling stands, and states would be barred from regulating sports betting on prediction markets while the CFTC retains sole authority to oversee the category as a federal matter.
The Supreme Court's decision on whether even to hear the case will likely hinge on whether justices see a split among federal courts or unresolved constitutional questions about state regulatory power. Without a grant, Kalshi and other platforms would operate under CFTC rules nationwide, foreclosing state-level sports betting schemes that New Jersey and other states might want to impose.
