Kalshi Faces Supreme Court Showdown as CFTC Rule 40.11 Rewrite Sparks Legal Battle

New Jersey wants the Supreme Court to settle this. The Third and Ninth Circuits disagree on whether states can regulate sports betting on federally registered exchanges, and Kalshi — the prediction market firm sitting at the dead center of the fight — says the whole mess basically comes down to a CFTC rule currently being rewritten.

Kalshi hasn’t filed its Supreme Court response yet. The opposition brief is due in roughly one month. But three of the company’s executives have already gone on record with the firm’s position, and the picture they’re painting is pretty clear: the legal confusion, in their view, flows directly from an outdated regulation that the CFTC itself is in the middle of revising.

CEO Tarek Mansour went after the Ninth Circuit’s ruling hard. That ruling favored New Jersey and, per Mansour, made the legal landscape murkier rather than cleaner. He pointed specifically to Rule 40.11 as the crux of the disagreement, and said a forthcoming rule change could resolve things relatively fast once it lands.

What the Executives Actually Said

Kalshi’s head of litigation, Jovy Dedaj, took a narrower angle. Dedaj’s read is that the Ninth Circuit’s decision partly rests on a misreading of a specific provision inside the Commodity Exchange Act — not a sweeping legal principle, but a textual mistake that shaped the whole outcome. Spokesperson Dani Lever added that the gap between the Third and Ninth Circuit rulings traces back to a regulation the CFTC is already revising. That’s the argument Kalshi keeps returning to: the courts are fighting over a rule that’s in the process of being replaced.

The proposed CFTC rule would swap out a flat prohibition on sports-related contracts for a public interest review process. If it goes through, most game-outcome contracts and prop contracts would probably survive that review. That’s a big shift from where things stand now.

The CFTC has been backing Kalshi in state-level legal fights, filing amicus briefs asserting federal jurisdiction. A CFTC spokesperson said the Ninth Circuit got the relevant statutes and regulations wrong. But Ninth Circuit Judge Kenneth K. Lee didn’t budge. He said 17 C.F.R. § 40.11 bars gaming contracts and that the proposed revisions don’t change what the existing rule says right now.

Not a small disagreement.

Read also: New Jersey Seeks Supreme Court Review of Kalshis Controversial Sports Contracts

The Dodd-Frank Problem Nobody Wants to Touch

New Jersey’s petition cuts to something uncomfortable. The state is asking whether Dodd-Frank preempts state regulation of sports bets placed on CFTC-registered markets. And the implication buried in that question is genuinely alarming for the industry: if Kalshi’s legal interpretation holds, state-licensed sportsbooks — the ones that have been operating legally for years — may have been violating federal law the whole time. That’s not a fringe reading. That’s what New Jersey’s petition actually says.

The economic and political fallout from that conclusion would be enormous. It’s unclear whether the Supreme Court wants to go anywhere near it.

John Holden of Indiana University laid out the timeline. Kalshi’s opposition comes first, within 30 days. Then New Jersey’s reply. Then potentially a conference. The justices could ask the Solicitor General for an analysis, which would stretch the whole thing out further. Bank of America told clients the Court might just wait for other circuit cases to develop before stepping in at all.

New Jersey, separately, faces a deadline of its own — the state must ask the Supreme Court by Thursday to review the Third Circuit’s decision, which went in Kalshi’s favor on the sports betting legality question.

More context: CFTC Seeks Dismissal of CME’s Crypto Futures Lawsuit, Citing No Legal Standing

There’s another wrinkle Kalshi can’t shake. Before it entered the sports betting market, the company made concessions in an earlier legal fight over election contracts. Kalshi acknowledged that gaming includes sports, and that an illegal financial instrument can’t be cleaned up by a public-interest review. The Ninth Circuit picked that up and used it. So Kalshi’s own prior legal strategy is now working against it in the current case. That’s a hard position to argue around.

The broader jurisdictional tension here isn’t going away regardless of how this specific case lands. Federal regulatory frameworks and state gambling laws are colliding in real time, and the CFTC’s ongoing rule revision means the legal ground keeps shifting. Courts are being asked to interpret rules that the regulator itself seems to think need fixing.

Kalshi’s opposition brief is due in approximately one month, and whatever it says will need to square the company’s current position with what its lawyers already put on the record in the election contract dispute.