Third Circuit Backs Kalshi Sports Contracts, Setting Up 2026 Supreme Court Fight
Updated
Updated · City Journal · Jun 30
Third Circuit Backs Kalshi Sports Contracts, Setting Up 2026 Supreme Court Fight
3 articles · Updated · City Journal · Jun 30
Summary
An April 2026 Third Circuit ruling held that sports contracts on CFTC-registered markets are swaps under exclusive federal jurisdiction, sharply raising the odds of a Supreme Court showdown over Kalshi’s business.
The dispute turns on whether Kalshi’s Super Bowl-style contracts are federally regulated derivatives or illegal gambling, with at least 15 states, tribes and legacy betting operators arguing state and tribal law still controls.
Kalshi’s position strengthened after it beat the CFTC over election contracts in September 2024; the agency dropped that appeal in May 2025, and Kalshi expanded into sports in January 2025 and parlay-style combos in September 2025.
Other appeals are still moving: the Ninth Circuit heard Nevada-related arguments in April, while the Fourth Circuit heard Maryland arguments in May and appeared skeptical of Kalshi’s preemption claims.
A Supreme Court review would test Dodd-Frank’s event-contract rules, the undefined scope of “gaming,” and whether Congress clearly meant the CFTC to displace state oversight of a multi-hundred-billion-dollar sports-betting market.
Can regulators draw a clear line between a financial contract and a simple bet on a game's final score?
Is trading on sports outcomes the next wave of financial innovation or simply gambling in disguise?
Will prediction markets create a trillion-dollar financial industry or a federally regulated sportsbook?
From Gambling to Swaps: The 2026 Legal Battle Over Prediction Markets, State Authority, and the Future of Sports Event Contracts
Overview
In April 2026, the Third Circuit issued a landmark decision that redefined sports event contracts as 'swaps' under federal law, placing them under the exclusive authority of the CFTC instead of state gambling laws. This ruling allowed Kalshi to continue operating in New Jersey and highlighted the growing conflict between state and federal regulators over prediction markets. As states and tribes challenge federal oversight and courts issue conflicting decisions, the CFTC is refining its rules to balance innovation with market integrity. With high economic stakes and ongoing legal battles, the Supreme Court is likely to decide the future of prediction market regulation.