State gaming laws cannot bind federal exchanges, panel says

Next Predict Summit panel says state gaming laws cannot bind federal exchanges

Javalin Dedaj stood at a podium in New York on Friday and said the quiet part plainly: Kalshi trades on a designated contract market, the CFTC has exclusive jurisdiction, and that is the end of the states' argument. He said it knowing that three federal appeals courts have now looked at the same question and reached three different answers.

That gap is the story, and it is wider than the industry is letting on.

The Third Circuit sided with Kalshi against New Jersey in April, finding that sports event contracts qualify as swaps under the Commodity Exchange Act. The Ninth Circuit went the other way in August on Nevada, concluding those same contracts are likely not swaps. The Sixth Circuit added a third wrinkle last month: even if the contracts are swaps, state gaming laws would likely survive preemption anyway. A Fourth Circuit ruling is pending, and the Massachusetts Supreme Court has its own case moving. The New Jersey matter has reached the Supreme Court, where Kalshi's brief is due November 9.

What the Next Predict Summit framed as a jurisdiction question is, underneath it, a market structure question. If federal preemption holds, Kalshi and its competitors operate a national book under a single regulator. If it doesn't, they face a patchwork where Utah can sue to recover fees already collected from thirty-two thousand verified accounts, where an attorney general can stand at a news conference and say the state said no to gambling in 1896 and means it still.

Utah's suit is not a negotiating position. Attorney General Derek Brown is asking for geolocation controls, disgorgement of profits, and a shutdown of Kalshi's operations in the state. The complaint names Susquehanna International Group as a defendant alongside Kalshi affiliates, which is the detail that should concentrate minds at every market-making desk watching this litigation. When the counterparty risk isn't just regulatory but civil, the calculus for providing liquidity on contested contracts changes.

The industry's position at the Summit was that it will adapt if the Supreme Court sides with the states. That framing treats the Supreme Court as the terminal event. I don't think it is. The Sixth Circuit's ruling is the one that should be keeping Kalshi's lawyers awake, because it doesn't just challenge the swap classification — it says the classification may not matter. If a court can find that federal commodities law and state gambling law coexist without conflict, preemption arguments built purely on CFTC jurisdiction become structurally weak regardless of how the swap question resolves.

The CFTC's proposed rule — expressly defining event contracts including sports, political, cultural, and weather contracts as swaps — was designed to close exactly that gap. Whether it does depends on whether rulemaking can accomplish what litigation has not, and the Sixth Circuit's logic suggests it cannot do it alone.