The question of whether sports event contracts can be listed on prediction markets appears to be headed for a showdown at the Supreme Court. On August 28, 2026, the Ninth Circuit held that sports event contracts likely are not “swaps” under the Commodity Exchange Act (“CEA”) and therefore are not insulated from enforcement of Nevada’s gaming laws due to the CFTC’s exclusive jurisdiction. KalshiEX, LLC v. Assad, No. 25-7516, (9th Cir. Aug. 28, 2026). The unanimous panel expressly disagreed with the Third Circuit’s contrary conclusion four months earlier.
Five days later, on September 2, New Jersey petitioned the Supreme Court to resolve the conflict, one day before a filing deadline.
The split turns principally on a threshold statutory question: whether a contract paying out based on the outcome of a sporting event is a “swap” under 7 U.S.C. § 1a(47)(A)(ii). That answer largely determines whether the CFTC’s exclusive-jurisdiction provision, 7 U.S.C. § 2(a)(1)(A), displaces state gaming regulation of those contracts. In other words, the question will likely settle much of the uncertainty around which, if any, sports event contracts are subject to state gaming laws, which would treat the contracts as bets or wagers.
A victory for states could curtail the booming sports prediction markets, subjecting them to the same limitations, jurisdictions, and state-by-state regulation that existing online sportsbooks are subject to; a victory for prediction markets would likely solidify the market for sports event contracts trading nationally on CFTC-regulated exchanges, absent a change in law.
Kalshi Sports-Contract Litigation Has Spread Nationwide
Litigation over Kalshi’s sports event contracts has spread rapidly across the country since 2025. New Jersey’s petition for certiorari describes litigation involving gaming regulators in at least 20 states, with numerous federal and state trial-court rulings already issued.
Kalshi scored important early injunction wins in cases including Nevada and New Jersey. The Third Circuit also gave Kalshi its first court of appeals victory in April 2026 in KalshiEX, LLC v. Flaherty, 172 F.4th 220 (3d Cir. 2026), upholding a preliminary injunction against New Jersey gaming regulators. The CFTC also entered the arena, explicitly backing CFTC-registered prediction markets against state enforcement by filing actions against various states, including New York, Kentucky, Arizona, Minnesota, and Connecticut. See, e.g. CFTC, CFTC Exercises Emergency Authority to Ensure Market Stability, Release No. 9281-26 (Aug. 11, 2026).
But more recent decisions involving Kalshi have tilted toward the states, including adverse rulings or other setbacks in Washington, New York, Ohio, Utah, Wisconsin, and Connecticut. In Ohio, a federal district court denied Kalshi a preliminary injunction, and the Sixth Circuit then denied an injunction pending appeal. Utah went further, granting the state summary judgment on August 4 and holding that the CEA does not preempt Utah’s anti-gambling laws as applied to Kalshi’s sports contracts. The Ninth Circuit’s recent ruling in Assad then created a circuit split with the Third Circuit.
The complicated and fractured landscape highlights the core issues leading to the new circuit split between the Third and Ninth Circuits.
The Third Circuit: The Text Is Broad, and That Settles It
In KalshiEX, LLC v. Flaherty, 172 F.4th 220 (3d Cir. 2026), a 2–1 panel affirmed a preliminary injunction barring New Jersey from applying its gambling laws to Kalshi’s sports event contracts. The majority framed the case narrowly as regulation of trading on a designated contract market (“DCM”), rather than regulation of sports gambling generally.
Three features of the case are especially important to keep in mind:
- First, the majority relied primarily on the breadth of the statutory text. The swap definition extends to an agreement or transaction based on an event “associated with a potential financial, economic, or commercial consequence,” 7 U.S.C. § 1a(47)(A)(ii), and the court reasoned that sporting outcomes can have economic consequences for sponsors, advertisers, broadcasters, franchises, and others. It therefore concluded that Kalshi’s sports contracts fit the definition. From that premise, the majority concluded that the CFTC’s exclusive jurisdiction over swaps traded on a DCM likely preempted New Jersey’s attempt to regulate the contracts.
- Second, when New Jersey warned that the majority’s definition could sweep ordinary games and wagers into federal swaps law, the majority pointed to Congress’s delegation allowing the CFTC to “further define” swaps.
- Third, the majority noted that the CFTC had not reviewed or prohibited Kalshi’s sports contracts under 17 C.F.R. § 40.11—which, as written now, categorically prohibits contracts involving “gaming,” with the relevant remedy being CFTC-initiated review.
This line of reasoning did not carry the day in the Ninth Circuit, however.
The Ninth Circuit: Statutory Context and Rule 40.11
Judge Nelson’s opinion in Assad directly addressed and conflicted with the Third Circuit’s reasoning.
The Ninth Circuit Distinguishes “Event” from “Outcome”
Because the swap definition uses both “event” and “occurrence,” the Ninth Circuit reasoned that the terms should not be collapsed into the same concept; it also noted that dictionaries describing “event” as an “outcome” mark that usage as archaic or rare. The surrounding provisions of the swap definition overwhelmingly concern rates, indices, financial measures, and risk transfer. In the panel’s view, traditional swaps transfer existing risk, while Kalshi’s sports contracts “create risk, largely for ordinary consumers, where none previously existed.”
The Ninth Circuit’s Limiting-Principle Analysis
The Ninth Circuit also pressed the limiting-principle problem. Section 2(e) of the CEA generally makes it unlawful for a person other than an eligible contract participant to enter into a swap unless the transaction occurs on a DCM. 7 U.S.C. § 2(e). If an ordinary sports wager is a “swap,” the panel reasoned, materially identical sportsbook bets could be swept into that prohibition. The court rejected the Third Circuit’s answer that the agencies could narrow the definition later: the need to carve ordinary wagers back out would itself show that the proposed definition swept too broadly, in the court’s opinion.
The Ninth Circuit’s Reading of Rule 40.11
Where Flaherty emphasized agency inaction, Assad emphasized the operative text: a registered entity “shall not list for trading” a contract that “involves, relates to, or references . . . gaming.” 17 C.F.R. § 40.11(a)(1). The Ninth Circuit reasoned that registered entities must certify that listed contracts comply with the CEA and CFTC regulations, and concluded that Kalshi’s sports contracts impermissibly involve “gaming” under the current text of Rule 40.11.
However, the CFTC proposed rules in June 2026 to amend that categorical ban in favor of more case-by-case review of gaming contracts — so the § 40.11 issue may soon be moot. Nonetheless, since the Ninth Circuit’s reasoning did not hinge on § 40.11, amended rules will not fully resolve the question resulting in the circuit split.
Other Circuits to Weigh In
The Third and Ninth Circuits remain the only courts of appeals to have issued opinions on the preemption question, although both decisions arose from preliminary-injunction proceedings. Other appeals remain active:
What Happens Next
On September 9, Kalshi filed a petition for rehearing en banc in the Ninth Circuit, asking the full court to revisit the panel decision. The rehearing petition is the most immediate potential mechanism for altering the newly created circuit split before the Supreme Court acts on New Jersey’s petition. The following day, Robinhood filed a petition for certiorari seeking Supreme Court review of the Ninth Circuit’s ruling in its parallel case against Nevada. Robinhood’s petition is conditional: although it argues that Supreme Court review may be premature while related litigation and CFTC rulemaking continue, it asks the Court to grant its petition if the Court grants New Jersey’s petition or otherwise decides to address the issue.
The direct and acknowledged conflict between the Third and Ninth Circuits materially increases the prospect of Supreme Court review. The timing and posture of any Supreme Court review, however, could be affected by the pending Ninth Circuit rehearing petition and parallel appeals in other circuits.
Implications for Sports Event Contracts
The stakes are significant for DCM-listed sports event contracts, although notably these cases do not appear to directly resolve the treatment of non-sports event contracts. If sports event contracts ultimately are held not to be swaps, DCM operators would lose the principal theory of exclusive federal jurisdiction asserted in these cases to resist state gaming enforcement of those products, potentially increasing exposure to state-by-state regulation. If the contrary view prevails, DCM operators would have a substantially stronger basis for offering sports event contracts nationally, subject to the CEA and applicable CFTC regulation.