The biggest legal question in prediction markets is now in front of the Supreme Court: can a state apply its gambling laws to sports event contracts listed on an exchange regulated by the Commodity Futures Trading Commission? New Jersey asked the justices to answer it in September 2026, in a case styled Flaherty v. KalshiEX, LLC, No. 26-299. The Court has not yet decided whether to hear it.
The answer will decide whether sports contracts stay available nationwide or become legal state by state. This guide explains how the case got here, who is lined up on each side, the likely timeline and what each possible outcome would mean for traders.
| Item | Status (late October 2026) |
|---|---|
| Case | Flaherty v. KalshiEX, LLC, No. 26-299 |
| Petition filed | Sept. 2, 2026, by New Jersey officials |
| Kalshi's response | Due Nov. 9, 2026 |
| Supporting New Jersey | 39 states and DC, the NFL, 145 tribes and tribal organizations, the American Gaming Association |
| Decision to hear the case | Not yet; reports expect it by December |
| Possible ruling | By June 2027 if the case is heard this term |
The Question at the Heart of the Case
Kalshi is a designated contract market, a federally regulated exchange. The Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps and futures traded on such exchanges. Kalshi argues that its sports contracts are swaps, so federal law preempts state gambling statutes and no state can make it get a sportsbook license.
States answer that a contract on who wins a football game is a sports bet whatever it is called, that gambling has always been regulated by the states, and that Congress never meant the CFTC's jurisdiction to swallow it. The fight turns on two linked questions: whether sports event contracts are swaps at all, and if they are, whether federal law actually displaces state gambling law.
How the Courts Split
Third Circuit (New Jersey), April 2026. A 2-1 panel upheld Kalshi's preliminary injunction against New Jersey, finding that its sports contracts are likely swaps and that federal law likely preempts the state's gambling laws.
Ninth Circuit (Nevada), August 2026. A unanimous panel went the other way, letting Nevada enforce its gaming laws against sports contracts while the case continues. It found the contracts are in substance sports gambling and sent the question of election contracts back to the lower court. Kalshi has asked the full Ninth Circuit to rehear the case.
Sixth Circuit (Ohio and Tennessee), September 2026. Another unanimous panel sided with the states. It found that Kalshi had not shown its sports contracts are swaps, and added that even if they were, federal law would not preempt Ohio's and Tennessee's gambling laws. Kalshi petitioned for rehearing on Oct. 9.
The Fourth Circuit heard arguments in Kalshi's Maryland case in May 2026. With one circuit on each side of a question that affects every state, the split is the classic reason for the Supreme Court to step in. Our state-by-state legality map shows where sports contracts are restricted now.
Who Is Backing Each Side
New Jersey has heavy support. Attorneys general from 39 other states and the District of Columbia filed a brief urging the Court to take the case. So did the NFL, which told the justices that $1.8 billion of the $3.3 billion traded on prediction markets on the first Sunday of the 2026 season was tied to its games and argued the contracts are gambling. The American Gaming Association joined 145 tribes and tribal organizations in a further brief.
Kalshi's most important ally is the federal regulator. The CFTC under Chairman Michael Selig has argued in court that it has exclusive jurisdiction over event contracts, sued Arizona, Connecticut and Illinois in April 2026 to stop state enforcement, and on Oct. 9 proposed a rule defining event contracts on sports, politics, culture and weather as swaps. An interim final rule issued the same day says sportsbook bets and casino games are not swaps. Our CFTC guide explains how much weight such rules carry.
The Timeline
The Court first decides whether to grant review, which takes four justices. Kalshi's response to the petition is due Nov. 9, after which New Jersey can reply and the case goes to a conference.
- If the Court grants review by about January 2027, the case would likely be argued in the spring and decided by the end of June 2027.
- If it grants review later, argument would slip into the term that starts in October 2027, with a ruling in the first half of 2028.
- If it denies review, the split stands. Sports contracts would stay legal or illegal depending on which circuit a state sits in, and the question would return in a later case.
The Court can also hold the petition while lower courts finish, since every ruling so far has come at the preliminary injunction stage rather than after a full trial.
What Each Outcome Would Mean
A ruling for the states would let every state decide whether sports event contracts are legal gambling, require a license or are banned. Exchanges would need state-by-state compliance like sportsbooks, and sports volume, the largest share of the industry's trading, would shrink in states that say no. Contracts on economics, weather and most other topics would be largely unaffected, though election contracts face separate state challenges.
A ruling for Kalshi would confirm a national market for sports contracts on CFTC-regulated exchanges, overriding state licensing. States would then press Congress, where bills such as the bipartisan Schiff-Curtis bill would bar sports contracts on CFTC-registered platforms.
A narrow ruling is also possible: the Court could decide only whether these contracts are swaps, or only the preemption question, and send the rest back.
What Traders Should Do Now
Nothing changes until the Court acts, and nothing changes overnight even then. If you trade sports contracts, know your state's current position, since enforcement in Nevada, Ohio and Tennessee is already live. Keep accounts on more than one platform in case access changes, and remember that markets on the economy and most non-sports events are not part of this fight. The case's progress will be covered in our news section, and our guide to whether prediction markets are legal in the US explains the wider picture.
Frequently Asked Questions
Is the Supreme Court hearing a prediction markets case?
Not yet. New Jersey asked the Court in September 2026 to review a Third Circuit ruling that favored Kalshi, in Flaherty v. KalshiEX, LLC, No. 26-299. The justices have not decided whether to take it.
When will the Supreme Court decide on prediction markets?
If the Court agrees to hear the case by early 2027, a ruling would most likely come by the end of June 2027. A later grant would push a ruling into 2028.
What is the circuit split on prediction markets?
The Third Circuit sided with Kalshi in New Jersey, finding its sports contracts are likely swaps protected by federal law. The Ninth Circuit, in Nevada's case, and the Sixth Circuit, in Ohio's and Tennessee's, sided with the states.
What happens if Kalshi loses at the Supreme Court?
States could treat sports event contracts as gambling and ban them or require licenses. Sports trading would become state by state, while most non-sports contracts would be largely unaffected.
What happens if Kalshi wins?
Sports contracts on CFTC-regulated exchanges would stay available nationwide, and the pressure would shift to Congress, where several bills aim to restrict them.
Does the case affect election markets?
Not directly. The case is about sports contracts. Election contracts face separate challenges, including in Nevada's case, where the Ninth Circuit sent the election question back to the trial court.
