The preemption gap in prediction market high court petitions

This article was originally published in Law360 on September 22, 2026.

The prediction markets litigation sweeping the country turns on whether the Commodity Exchange Act preempts state gaming laws as applied to sports event contracts traded on designated contract markets, thus barring state regulators from enforcing those laws against companies like KalshiEX LLC.

The answer depends largely on two CEA provisions. Section 2(a)(1)(A) gives the U.S. Commodity Futures Trading Commission "exclusive jurisdiction" over swaps traded on a DCM, subject to savings clauses stating that, "[e]xcept as hereinabove provided," the CEA does not limit the jurisdiction of the U.S. Securities and Exchange Commission or other federal and state regulatory bodies, and that the CEA does not limit the jurisdiction of federal or state courts.

And Section 1a(47)(A)(ii) defines a "swap" to include contracts whose payment depends on "the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence."

The ultimate question, therefore, has two parts: Are sports event contracts swaps, and if so, does the CEA displace state authority over them?

Two circuits have weighed in and split. In Kalshi v. Flaherty, the U.S. Court of Appeals for the Third Circuit held on April 6 that the CEA impliedly preempts New Jersey's gaming laws with respect to sports event contracts, finding that the contracts are swaps and that both field and conflict preemption apply.

In Kalshi v. Assad, the U.S. Court of Appeals for the Ninth Circuit held on Aug. 28 that the CEA does not preempt Nevada's gaming laws because sports event contracts are not swaps. It rejected field and conflict preemption, but said that if the contracts were swaps, Section 2(a)(1)(A) would expressly preempt Nevada's applicable laws.

Three certiorari petitions are now pending before the U.S. Supreme Court: New Jersey's gaming regulators have petitioned from the Third Circuit's ruling, and Crypto.com and Robinhood — whose cases were consolidated with Kalshi's Ninth Circuit case — have petitioned from the Ninth Circuit's ruling.

Much attention has gone to the swap split. Less has gone to a structural problem with the lead petition.

The Third Circuit decided only implied preemption, whereas the Ninth Circuit decided express preemption as well. If the Supreme Court grants only New Jersey's petition and holds that sports event contracts are swaps, but rejects implied preemption, it may have no clean way to reach the express preemption question, thus leaving the dispute half-resolved and the litigation to continue below. Robinhood's conditional petition asks the justices to fix exactly that problem.

Third Circuit decided implied preemption

Having concluded that Kalshi's sports event contracts are swaps, the Third Circuit held that the CEA impliedly preempts New Jersey's laws under both field and conflict preemption theories.

Field preemption applies when federal law occupies a field so completely that it leaves no room for state regulation. The Third Circuit defined the relevant field as the regulation of trading on a DCM, a form of futures trading (an area where several circuits have held the CEA preempts state law) rather than gambling (a traditionally state-regulated domain).

Because the CFTC has exclusive jurisdiction over swaps traded on DCMs, and because, according to the Third Circuit, Kalshi's sports event contracts are swaps, the Third Circuit concluded New Jersey had intruded on federally occupied territory.

Conflict preemption applies either when compliance with both state and federal law is impossible, or when state law stands as an obstacle to the objectives of a federal law. The court found that obstacle conflict preemption applied.

The CEA, it reasoned, is a "comprehensive regulatory structure" designed to "oversee the volatile and esoteric futures trading complex" and replace a "patchwork of state regulations" with exclusive federal oversight of futures traded on DCMs. Allowing New Jersey's laws to bar Kalshi's contracts in that state, the court held, would obstruct that objective.

Although the majority noted that "[f]ield preemption sounds a lot like express preemption," it never decided whether Section 2(a)(1)(A) is an express preemption clause. And Kalshi, for its part, did not develop express preemption as a separate theory.

In its appellate brief, it said only in passing that the Third Circuit could affirm the U.S. District Court for the District of New Jersey on the basis of express preemption without developing the argument. Whether that preserved the express preemption argument is an open question.

Ninth Circuit decided express and implied preemption

The Ninth Circuit approached the CEA differently. Section 2(a)(1)(A), it held, expressly preempts state laws regulating swaps traded or executed on a DCM, because the grant of "exclusive jurisdiction" to the CFTC over those instruments necessarily denies jurisdiction to all others. Unlike in its Third Circuit briefing, Kalshi affirmatively advanced an express preemption theory before the Ninth Circuit.

That express preemption premise framed the court's widely reported swap analysis: If the statute expressly preempts state regulation of on-DCM swaps, then "the dispositive issue is whether the sports event contracts are 'swaps.'" The court held they are not.

The court separately rejected implied preemption. On conflict preemption, it found that Kalshi had not shown that complying with Nevada law would violate the CFTC's requirement that a DCM provide "impartial access to its markets and services," suggested that geofencing made complying with both regimes possible, and concluded that the CEA's special rule authorizing the CFTC to disallow contracts involving activity unlawful under state law showed the two regimes can coexist.

On field preemption, the court asked what Nevada's laws aim at, identified that field as gaming and held Congress has "explicitly not occupied the field of gambling."

The express preemption gap in New Jersey's petition

New Jersey's certiorari petition asks whether the CEA "preempt[s] States from regulating sports bets that occur within their jurisdictions if those bets are offered on markets registered with the [CFTC]." The petition describes the split as "driven by a conflict over the interpretation of the word swap." But it attacks the Third Circuit on two grounds: that sports bets are not swaps, and that federal law does not impliedly preempt state gambling laws regardless.

What if the Supreme Court agrees with the second premise but not the first?

Holding that the sports event contracts are swaps establishes only that they fall within the CFTC's subject matter jurisdiction. It does not decide whether Congress meant to displace overlapping state gaming laws.

The Supreme Court could, therefore:

• Conclude that the sports event contracts are swaps but reject implied preemption in a way that keeps live the question of whether express preemption applies — for example, by applying the presumption against preemption (more often applied to implied preemption than express preemption) in a field of traditional state regulation — a presumption the Third Circuit declined to apply;
• Find that compliance with both federal and state regimes is neither impossible nor an obstacle to the CEA's objectives; and/or
• Hold that the CEA's savings clauses, which preserve some jurisdiction conferred on state regulatory authorities and state courts, show that Congress did not leave any room for state law, which field preemption requires.

In the above-described scenario, the New Jersey petition runs out of road. Kalshi, as the prevailing party below, could urge affirmance on the alternative ground that Section 2(a)(1)(A) expressly preempts the relevant state laws — a theory it successfully pressed in the Ninth Circuit.

But the Third Circuit never decided that question, and the Supreme Court ordinarily declines issues not passed on below. Nor did Kalshi meaningfully preserve that argument: Its Third Circuit brief argued field and conflict preemption, noting only in passing that the court could affirm on an express-preemption basis. And New Jersey's petition does not tee up the issue of express preemption.

In that case, if the court only takes up Flaherty, it has three unattractive options: reach express preemption anyway, on a record where no lower court addressed it; decline to reach it, leaving the question to the many parallel cases pending; or remand. The latter two options leave room for another split to emerge.

The certiorari petitions that could close the gap

Robinhood has laid out a cleaner path. Its petition is conditional, arguing that "granting certiorari now would be premature" in light of pending CFTC rulemaking. But it asks that if the court grants New Jersey's petition or any other presenting the question, that it grant Robinhood's as well.

The reason it gives is the gap noted above: "The Third Circuit did not decide whether the CEA expressly preempts such state regulation. … Only the Ninth Circuit case presents the full range of preemption arguments."

Crypto.com, by contrast, urges the Supreme Court to take its case alone as the "ideal vehicle" for resolving the circuit split, and does not raise the express preemption gap or note that express preemption could be left open absent the justices taking up one of the Ninth Circuit petitions.[1] Nonetheless, its petition would also put the express preemption holding before the court.

The stakes of leaving the question of express preemption open are high because there are already signs of an emerging split over that issue. While the Ninth Circuit determined that the CEA expressly preempts state laws governing swaps traded or executed on a DCM, the U.S. Court of Appeals for the Sixth Circuit preliminarily decided on April 24 that it does not.

In denying Kalshi a stay pending appeal in Kalshi v. Schuler, the Sixth Circuit assumed without deciding that sports event contracts are swaps and nonetheless found that express preemption does not apply.[2] It reasoned that Section 2(a)(1)(A) "would represent an unusual express-preemption provision" because it does not use words like "preempt" or "supersede," and it pointed to the CEA's savings clauses and other preemption provisions as evidence that Section 2(a)(1)(A) is not an express preemption provision at all.

It is clear that, if the Supreme Court takes up any of the petitions, the swap question will be answered. Whether the express preemption question gets answered — or is left to become the next potential battleground between the states and prediction market companies — depends on which petition, or petitions, it takes.

Jordan Garman is a partner at Withers.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Kalshi, on the other hand, petitioned for rehearing en banc of the Ninth Circuit decision. A grant could eliminate the circuit split driving all three pending certiorari petitions.

[2] The Sixth Circuit also preliminarily held that neither form of implied preemption applied.