jili tutorial

Kalshi’s Legal Battle Over Sports-Event Contracts: A Deep Dive into the Circuit Split, SCOTUS Petition, and the Ninth Circuit Showdown

By jili tutorial · September 10, 2026

Kalshi’s Legal Battle Over Sports-Event Contracts: A Deep Dive into the Circuit Split, SCOTUS Petition, and the Ninth Circuit Showdown

The legal fight between Kalshi—a regulated prediction-market platform—and state regulators in Nevada and New Jersey has escalated into a full-blown federal appellate conflict. At its core, the dispute asks a deceptively simple question: Are sports-event contracts “swaps” under the Commodity Exchange Act (CEA), and if so, does that classification strip states of the power to regulate them as gambling? Two federal courts of appeals have answered that question in opposite ways. Now, the Supreme Court has been asked to resolve the split, and Kalshi is reportedly gearing up for another round of litigation in the Ninth Circuit—potentially seeking an en banc rehearing of a recent loss.

This guide unpacks the procedural posture, the legal stakes, the strategic calculations, and the broader implications for the future of prediction markets and state gaming regulation.

Background: What Are Prediction Markets and Why Does Kalshi’s Business Model Matter?

Kalshi’s Platform and the CFTC’s Regulatory Framework

Kalshi operates a designated contract market (DCM) regulated by the Commodity Futures Trading Commission (CFTC). It offers contracts that allow users to bet on the outcome of future events—ranging from economic indicators to sports results. The company argues that these contracts are “swaps” or “futures” under the CEA, placing them squarely within the CFTC’s exclusive jurisdiction. Under the federal preemption doctrine, state laws that conflict with federal regulation are invalid. If Kalshi’s contracts are indeed swaps, states like Nevada and New Jersey cannot treat them as illegal gambling.

State Pushback: Nevada and New Jersey

Nevada’s Gaming Control Board and New Jersey’s Division of Gaming Enforcement have taken the position that Kalshi’s sports-event contracts are essentially sports wagers, which fall under state gambling laws. Nevada sued Kalshi in federal court, seeking an injunction to bar the company from offering these contracts within the state. New Jersey did the same in a separate action. The cases are known as KalshiEX, LLC v. Assad (Nevada/Ninth Circuit) and Flaherty v. KalshiEX, LLC (New Jersey/Third Circuit).

The Circuit Split: Two Federal Courts, Two Opposite Conclusions

The Third Circuit’s Ruling: Kalshi Wins Federal Preemption

In the New Jersey case, the Third Circuit Court of Appeals ruled in Kalshi’s favor. The panel held that Kalshi’s sports-event contracts qualify as “swaps” traded on a designated contract market under the CEA. Because the CFTC has exclusive jurisdiction over swaps, the court concluded that New Jersey’s attempt to regulate them as gambling was preempted by federal law. Kalshi was likely to succeed on the merits, the court said, and New Jersey’s enforcement action was likely blocked.

The Ninth Circuit’s Ruling: Nevada Wins, Kalshi Loses

On August 28, 2026, a three-judge panel of the Ninth Circuit reached the opposite conclusion in the Nevada case. The court held that Kalshi’s sports-event contracts are not swaps under the CEA. The panel reasoned that interpreting the term “event” broadly enough to cover sports wagers would ignore the statutory context and purpose of the CEA. As a result, Kalshi’s federal preemption argument failed, and Nevada was allowed to regulate the contracts under its gaming law. The Ninth Circuit explicitly considered—and rejected—the Third Circuit’s reasoning, creating a “clean” circuit split.

What Makes This Split “Clean”?

A circuit split occurs when two (or more) federal appellate courts interpret the same federal law differently. This one is unusually clean because:

This is the kind of conflict that the Supreme Court is designed to resolve.

New Jersey Takes the Fight to the Supreme Court

The Cert Petition and Its Timing

On September 2, 2026, New Jersey filed a petition for a writ of certiorari in the Supreme Court, asking the justices to review the Third Circuit’s decision in Flaherty v. KalshiEX, LLC. The petition was formally docketed on September 8 as Case No. 26-299. New Jersey had obtained extensions from Justice Samuel Alito, the circuit justice for the Third Circuit, to file the petition.

Kalshi’s Response Deadline

Kalshi’s response to New Jersey’s petition is due on October 8, 2026. Under Supreme Court Rule 37, amicus curiae (friend-of-the-court) briefs in support of New Jersey are also due on that date. Notably, Native American tribes have signaled they will file an amicus brief, highlighting the significant gaming and regulatory interests at stake.

Why This Matters: Kalshi Becomes the Respondent

Because New Jersey filed the cert petition, Kalshi is now the respondent in the Supreme Court. Normally, a party that loses in a lower court must petition the Supreme Court on its own. But here, Kalshi won in the Third Circuit. The state that lost below is now asking the justices to reverse that win. This unusual alignment gives Kalshi a strategic advantage: it can play defense in Washington while simultaneously playing offense in the Ninth Circuit.

Kalshi’s Potential En Banc Petition in the Ninth Circuit

The September 8 Counsel Appearances

On September 8, 2026, multiple attorneys from the law firm Milbank—including Natasha Khan and Colleen Roh Sinzdak—entered appearances for Kalshi in the Ninth Circuit litigation. The timing is conspicuous: the deadline for Kalshi to file a petition for rehearing en banc (a request for the full Ninth Circuit to review the panel’s decision) is just days away. While adding counsel does not guarantee that a rehearing petition is coming, it is the sort of docket activity that appellate lawyers watch closely.

Gaming-law attorney Daniel Wallach, who has been tracking the case, noted on September 9 that Kalshi “may be filing a petition for rehearing en banc in the Ninth Circuit instead of seeking cert from SCOTUS.” This speculation is fueled by the procedural reality that Kalshi no longer needs to take its Ninth Circuit loss to the Supreme Court—New Jersey has already done that for them.

Why Seek En Banc Rehearing?

An en banc petition would allow Kalshi to ask a larger panel of Ninth Circuit judges (typically 11 or 15) to reconsider the three-judge panel’s decision. The benefits are clear:

  1. Win the case outright: If the en banc court reverses or narrows the panel’s reasoning, the adverse precedent in the Ninth Circuit could be erased or weakened.
  2. Eliminate the circuit split: If the Ninth Circuit changes its ruling to align with the Third Circuit, the Supreme Court might no longer need to intervene.
  3. Strengthen the record for SCOTUS: Even if the en banc petition is denied, a dissent from denial could provide Kalshi with additional ammunition to argue that the ninth circuit’s decision is flawed.

The Institutional Hook: Rule 35 and the Circuit Split

Federal Rule of Appellate Procedure 35 allows en banc rehearing when a case involves a question of exceptional importance or when the panel decision conflicts with another circuit. Kalshi can argue that the Ninth Circuit’s decision directly conflicts with the Third Circuit’s on a nationally important federal question. That is precisely the kind of conflict that en banc review is meant to address.

The Risks of En Banc

Seeking en banc rehearing is not without downsides. The Ninth Circuit could:

Kalshi must weigh these risks against the potential upside.

Procedural Nuances: Why Both Cases Are Imperfect Supreme Court Vehicles

Preliminary Injunction vs. Final Judgment

Both the Ninth Circuit and Third Circuit decisions arose from preliminary injunction proceedings, not final judgments on the merits. The Supreme Court often prefers to wait for a final judgment, which provides a fuller factual record and a more definitive ruling. However, the Court sometimes grants certiorari in interlocutory appeals when the legal question is purely legal, as it is here.

The Vehicle Problem

Nevertheless, the existence of a clear circuit split on a pure question of statutory interpretation increases the likelihood that the Court will take the case. New Jersey’s petition gives the Court a chance to resolve the split, and Kalshi’s response will likely argue either that cert should be denied (if it prefers to keep its Third Circuit win) or that the Court should grant review and rule in its favor.

Strategic Calculations: What Might Kalshi Do Next?

Option 1: Seek En Banc Rehearing in the Ninth Circuit

Kalshi asks the full Ninth Circuit to rehear Assad. If it wins, the circuit split disappears. If it loses, it can still seek certiorari—but now it would be asking the Supreme Court to reverse a full en banc decision, which is harder.

Option 2: Oppose Certiorari in the Supreme Court

Kalshi could argue that the Supreme Court should not review the Third Circuit’s decision because the case is interlocutory, or because the Ninth Circuit’s contrary ruling does not warrant immediate review. This would preserve Kalshi’s win in the Third Circuit and allow it to continue operating in states within that circuit.

Option 3: Support Certiorari and Ask for a Broad Ruling

If Kalshi believes the Supreme Court is likely to agree with the Third Circuit’s interpretation, it could actively support certiorari and ask the Court to resolve the split in its favor. Given the national importance of the issue, this might be a high-risk, high-reward approach.

Implications for Prediction Markets and State Gaming Regulation

The Future of Sports-Event Contracts

If the Supreme Court sides with the Third Circuit, Kalshi and other DCMs can offer sports-event contracts nationwide without state interference. The CFTC would retain exclusive jurisdiction, and prediction markets would be treated as a legitimate financial product rather than as illegal gambling.

If the Court sides with the Ninth Circuit, states would have the authority to regulate (or ban) these contracts under their own gaming laws. This could fragment the market, with some states allowing Kalshi’s contracts and others prohibiting them.

Impact on Other Prediction Market Platforms

The legal treatment of sports-event contracts will affect not only Kalshi but also other platforms such as Polymarket, PredictIt, and others that rely on the same CFTC regulatory framework. A ruling in favor of state authority could chill the entire industry, while a ruling in favor of federal preemption could spur growth.

Broader Regulatory Questions

The case also raises deeper questions about the scope of the CEA. Are event-based contracts “swaps” or something else? Should the CFTC have exclusive jurisdiction over all prediction markets, or should states retain some control? The Supreme Court’s eventual decision will shape the regulatory landscape for years to come.

Conclusion: A Pivotal Moment for Federal Preemption

The legal battle over Kalshi’s sports-event contracts is a textbook example of a circuit split that demands Supreme Court intervention. With New Jersey already having filed a cert petition, and Kalshi potentially preparing an en banc petition in the Ninth Circuit, the next few months will be critical. The outcome will determine whether prediction markets are treated as a federally regulated financial instrument or as a state-regulated gambling activity. For Kalshi, the strategy is clear: attack its loss in the Ninth Circuit while defending its win in the Third Circuit. For the rest of us, it’s a fascinating case study in federal preemption, appellate strategy, and the future of digital markets.