The legal fight over Kalshi's sports event prediction markets is rapidly approaching the U.S. Supreme Court after the Third Circuit sided with Kalshi against New Jersey in April 2026, while a separate Nevada appellate panel signaled it would likely rule the opposite way. With Rhode Island's attorney general also filing suit last week, the circuit split is now virtually certain to trigger Supreme Court review by the 2026-2027 term.
At stake is a fundamental question: are Kalshi's sports event contracts financial derivatives regulated exclusively by the CFTC, or are they sports bets subject to state gambling laws? The answer will determine whether prediction markets can operate nationally in all 50 states or only where state gambling laws permit them.
The Circuit Split
Third Circuit: Kalshi Wins (April 2026)
In April 2026, the U.S. Court of Appeals for the Third Circuit ruled that New Jersey cannot regulate Kalshi's prediction market because the platform operates under CFTC jurisdiction. The decision affirmed a lower-court injunction preventing New Jersey from enforcing its gambling laws against Kalshi.
The court's reasoning: federal commodity law preempts state gambling law when the contracts are listed on a CFTC-regulated exchange. Kalshi's event contracts qualify as "swap" derivatives under the Commodity Exchange Act, the court held, regardless of whether the underlying event is a sports outcome.
Ninth Circuit: Signs Pointing Against Kalshi
The Nevada appeal — heard in early May 2026 — involves the Nevada Gaming Control Board's attempt to block Kalshi from operating in the state. While the court has not yet ruled, oral argument questions suggested the panel views Kalshi's contracts as functionally indistinguishable from sports bets and therefore subject to state gambling regulation.
If the Ninth Circuit rules against Kalshi as expected, the circuit split between the Third and Ninth Circuits would all but force Supreme Court review.
The Rhode Island Lawsuit
Rhode Island Attorney General Peter Neronha sued Kalshi and competing platform Polymarket on May 23, 2026, alleging both companies have caused an 8% drop in state lottery sports betting revenue. The lawsuit asks the court to declare the sports event contracts illegal in Rhode Island and order both platforms to return profits earned from Rhode Island users.
Kalshi filed a competing federal lawsuit the same day, seeking an emergency restraining order to keep Rhode Island from shutting down its platform. The dueling lawsuits — filed within hours of each other — are now being consolidated for hearing in federal court.
What's at Stake
The legal outcome will reshape one of the fastest-growing segments of the U.S. wagering industry.
For Kalshi and Polymarket
A favorable Supreme Court ruling would unlock unrestricted national operation, including in the 11 states that don't permit legal sports betting (Alabama, Alaska, California, Georgia, Hawaii, Idaho, Minnesota, Oklahoma, South Carolina, Texas, Utah). Combined, those states represent ~85 million U.S. residents and a potentially $4-6 billion annual market.
For State Sportsbooks
An unfavorable ruling (from Kalshi's perspective) would force the platforms to either stop operating sports contracts entirely or seek state-by-state licensing — a far slower and costlier path. State-regulated sportsbooks would benefit by losing a major federally-regulated competitor.
For Players
If Kalshi wins, prediction markets become available nationally, including in states where sports betting is illegal. If Kalshi loses, the platforms likely retreat to non-sports event contracts (politics, weather, economic indicators) and shut down sports markets.
For background on legal sports betting markets where state-regulated operators dominate, see our US sports betting guide covering all 39 legal sports betting jurisdictions.
Timeline to Supreme Court
The most likely path:
- Summer 2026: Ninth Circuit rules on Nevada case
- Fall 2026: Losing party files cert petition to Supreme Court
- Spring 2027: Supreme Court grants or denies cert
- 2027-2028 term: If granted, oral argument and decision
The Supreme Court typically agrees to hear cases that produce clear circuit splits on important federal questions. Kalshi's case meets both criteria, making cert grant probable.
How Major Sportsbooks Are Responding
Major sportsbooks have been notably quiet on the Kalshi litigation publicly, while privately lobbying state regulators to challenge the platforms. DraftKings, FanDuel, BetMGM, and Caesars all have direct competitive interest in seeing Kalshi restricted to non-sports markets — though several are reportedly evaluating their own prediction market products in case Kalshi wins.
For comparisons of the regulated sportsbook market that Kalshi competes against, see our reviews of DraftKings, FanDuel, and Caesars.
The Political Dimension
The Trump administration's CFTC has been broadly supportive of Kalshi and prediction markets generally, viewing them as innovative financial products. State attorneys general — primarily Democratic AGs in NJ, MA, RI, NV — have been the primary opponents of Kalshi's expansion.
This federal/state split is unusual: most gambling regulation has historically been left to states. Kalshi's argument that federal commodity law preempts state gambling law represents a significant federalization of gambling regulation that some observers see as a potential constitutional issue.
What Could Settle This Out of Court
Congress could pre-empt the litigation by passing federal legislation either explicitly authorizing prediction markets or excluding sports contracts from CFTC jurisdiction. Neither outcome is likely before 2027, but bipartisan interest exists in both directions and reform proposals have been introduced in the House Agriculture Committee.
FAQ
Is Kalshi legal in all 50 states?
Kalshi currently operates nationally under CFTC regulation, but several states (NJ, NV, MA, RI) have moved to block it. The Third Circuit has ruled in Kalshi's favor; the Ninth Circuit is expected to rule against it.
How is Kalshi different from a sportsbook?
Kalshi operates as a CFTC-regulated commodity exchange offering yes/no event contracts. Users buy and sell shares in event outcomes rather than placing bets. Functionally, however, the experience closely resembles sports betting.
When will the Supreme Court decide?
If the Supreme Court grants cert in the 2026-2027 term, a decision would likely come by mid-2027. If cert is granted in the 2027-2028 term, a decision would come by mid-2028.
What happens if Kalshi loses?
Kalshi would likely stop offering sports event contracts nationally and focus on politics, weather, economic indicators, and other non-sports prediction markets. Polymarket would face similar restrictions.
Final Thoughts
The Kalshi litigation is the most important regulatory case in U.S. gambling since the 2018 PASPA decision that legalized state-level sports betting. The Supreme Court's eventual ruling — likely by 2027 or 2028 — will define whether prediction markets become a national alternative to state-regulated sportsbooks or remain restricted to non-sports contracts. Follow our coverage of legal sports betting on the latest articles page for updates as the litigation progresses.
Join the Conversation
Be respectful. No spam. Strategy discussion welcome.