The Kalshi dispute has moved beyond prediction markets. It is becoming a test of a much larger regulatory principle: should jurisdiction follow the legal wrapper of a product, or what that product actually does?
Kalshi operates a CFTC-registered designated contract market, or DCM. Under the Commodity Exchange Act, the CFTC has “exclusive jurisdiction” over swaps traded on those markets. In April, the Third Circuit held that Kalshi’s sports-event contracts likely qualify as swaps and that New Jersey’s gaming laws are therefore preempted.
Then the legal map fractured.
The Ninth Circuit sided with Nevada in August. The Sixth Circuit followed in September in litigation involving Ohio and Tennessee. Both rejected the proposition that federal derivatives regulation automatically displaces state gaming law. The Sixth Circuit went further: for an event contract to qualify as a swap, the underlying event must be intrinsically associated with a financial, economic or commercial consequence—not merely generate downstream economic effects.
That split is now before the U.S. Supreme Court. New Jersey’s petition, Flaherty v. KalshiEX, No. 26-299, asks whether Dodd-Frank stripped states of authority over sports bets simply because they are offered through a CFTC-regulated market. Kalshi’s response is due November 9. Ohio, 38 other states and the District of Columbia have backed review, alongside the NFL, the American Gaming Association and 145 tribes and tribal organizations.
The numbers explain why this is no longer theoretical.
The CFTC says registered markets certified approximately 1,600 event contracts in 2025, versus an average of roughly five per year between 2006 and 2020. The Ninth Circuit also noted that more than 90% of Kalshi’s trades in 2025 and 95% of its revenue were sports-related.
That creates an obvious regulatory-perimeter problem.
A sportsbook and a sports-event DCM may offer economically similar exposure while operating under radically different rules on licensing, taxation, age restrictions, responsible gaming, geolocation, integrity monitoring and tribal rights.
Yet simply labeling every event contract “gambling” would be equally crude. Prediction markets can perform genuine information-aggregation and price-discovery functions.
The CFTC itself appears to recognize that distinction. Its June proposal defines sports as “gaming” for purposes of the special event-contract rule, while contemplating differentiated treatment based on market integrity, informational utility and the nature of the underlying event.
The better test is therefore functional: what is being traded, why is it being traded, who is trading it, and what regulated product does it economically substitute for?
The Supreme Court may decide who regulates Kalshi. The harder question comes next: what happens when finance, gaming and technology produce essentially the same product under three different names?
