Kalshi's Event Contracts Are Gambling: Calling Them 'Swaps' Does Not Change What They Are
A wager does not become a financial instrument simply because it is written as a yes-or-no contract, traded on an exchange, and assigned a price between zero and one dollar. Sometimes a bet is simply a bet. That basic point is now at the center of a petition asking the United States Supreme Court to decide whether Kalshi can offer sports wagering nationwide while avoiding the gambling laws of every state in which its customers place those wagers.
In an earlier article on the gamification of trading, I discussed how Kalshi and similar platforms were stretching the boundaries of what could be presented as a regulated financial product. The examples then ranged from congressional-election contracts to questions such as whether President Trump would be added to Mount Rushmore, whether the United States would announce the existence of aliens, which song would lead Spotify, whether DOGE would send another email to federal employees, and how many applications Harvard would receive. Those contracts carried the label of regulated financial instruments. In substance, however, many looked far more like wagers offered for entertainment.
The latest litigation brings that concern into even sharper focus. The event contract label is no longer merely blurring the line between investing and gambling. Kalshi is using it to argue that federal commodities law prevents states from regulating what looks, functions, and is marketed as sports betting.
A Supreme Court Petition Puts the Question Squarely
On September 2, 2026, New Jersey gaming officials petitioned the Supreme Court for review in Flaherty v. KalshiEX, LLC. The question presented is whether the Dodd-Frank Wall Street Reform and Consumer Protection Act preempted states from regulating sports bets within their borders when those bets are offered on a market registered with the Commodity Futures Trading Commission.
The petition follows a direct split between two federal courts of appeals. The Third Circuit concluded that Kalshi's sports-related event contracts fall within the Commodity Exchange Act's definition of a swap and that the CFTC's exclusive jurisdiction displaces New Jersey's sports-wagering laws. The Ninth Circuit reached the opposite conclusion. It reasoned that Dodd-Frank did not silently transform ordinary sports bets into federally protected financial products or erase the states' traditional authority over gambling.
The Supreme Court has not agreed to hear the case. But the petition presents an important question that reaches far beyond Kalshi. If the Third Circuit's view prevails, an exchange may be able to take activity historically regulated as gambling, place it inside a federally registered market, call the resulting wager a swap, and then claim immunity from state gambling law.
What Congress Was Regulating When It Defined a 'Swap'
The legal argument begins with the Commodity Exchange Act's broad definition of a swap. As amended by Dodd-Frank after the 2008 financial crisis, the definition includes certain contracts in which payment depends on the occurrence or nonoccurrence of an event or contingency associated with a potential financial, economic, or commercial consequence. See 7 U.S.C. Section 1a(47)(A)(ii).
Read without context, those words can be stretched extraordinarily far. Almost anything that happens in the world may eventually produce some financial consequence for someone. A team's victory affects ticket sales and merchandise. A celebrity's appearance may affect television ratings. A song choice may affect streaming revenue. Even a neighborhood table-tennis match may involve an entry fee, equipment purchases, or a prize.
But that cannot be the limiting principle Congress intended when it expanded federal oversight of derivatives after a financial crisis. A traditional swap transfers or manages an existing economic risk. An airline might use a fuel swap to stabilize the future cost of jet fuel. A company might use an interest-rate swap to exchange floating-rate exposure for fixed-rate payments. A multinational business might use a currency swap to manage exchange-rate risk. The financial or commercial exposure exists independently of the swap; the swap is used to transfer or hedge it.
A wager on whether a tennis player wins the next set works differently. The contract ordinarily does not transfer a preexisting commercial risk. It creates a new risk for the person placing the wager. That is gambling, not hedging.
The Financial Consequence Cannot Be the Bet Itself
Kalshi's theory risks making the statutory phrase 'associated with a potential financial, economic, or commercial consequence' effectively meaningless. If the financial consequence needed to qualify as a swap can be the money won or lost under the contract itself, every wager becomes a financial contract simply because money is at stake. A coin toss, a bingo game, a horse race, and a table-tennis match would all qualify under the same circular reasoning.
The better reading is that the underlying event must be inherently connected to a financial, economic, or commercial consequence apart from the wager created by the contract. That interpretation gives the statutory language real work to do. It also fits the surrounding provisions of the swap definition, which overwhelmingly concern rates, currencies, commodities, securities, indices, and other financial measures.
This does not mean every event contract is necessarily gambling. Contracts tied to inflation data, interest-rate decisions, commodity supplies, energy demand, or economically consequential weather events may have genuine risk-transfer or hedging uses. The point is that placing every objectively resolvable question into a binary contract does not make every subject matter financial. Form cannot replace substance.
The Table-Tennis Problem
The New Jersey petition uses table tennis to demonstrate the problem. Kalshi offers trading on table-tennis outcomes. Under the broadest reading adopted by the Third Circuit, it is difficult to identify a principled distinction between a professional table-tennis match and a regional ping-pong tournament. Both can have some downstream economic effect. Both can become the subject of a yes-or-no wager. And neither bears a meaningful relationship to the types of financial risk that Congress was addressing through Dodd-Frank.
That is not merely a colorful hypothetical. It shows why the words 'associated with' cannot mean any conceivable connection. If professional sports results are swaps because sports generate revenue, why stop there? Why would the Mount Rushmore question, an alien-announcement question, the first song performed during a halftime show, or the words used by an announcer not also qualify? Each can be linked to attention, advertising, consumer behavior, or some other economic effect. At that point, the statute has no boundary at all.
For many of these contracts - and, in my view, most sports and entertainment contracts now dominating the platform - the plain-English description remains the most accurate one: gambling, nothing more and nothing less.
The Self-Certification Process Is Not Meaningful Preapproval
The process by which these products reach the market makes Kalshi's position even more troubling. A CFTC-registered designated contract market generally does not need affirmative Commission approval before listing a new product. Under CFTC Regulation 40.2, the exchange files its own certification that the product complies with the Commodity Exchange Act and applicable regulations. The filing must generally be received by the opening of business on the business day before the product is listed.
In other words, this is not a conventional approval process in which the regulator studies a proposed product and affirmatively authorizes it. The exchange makes the legal judgment, certifies its own compliance, and may ordinarily proceed almost immediately. The Commission retains authority to demand more information, stay a listing in specified circumstances, or initiate a special review of an event contract. But the starting mechanism is self-certification, not prior approval.
That distinction matters when Kalshi points to federal regulation as the reason states must stand down. The status 'Certified' should not be confused with a considered CFTC determination that a particular contract is a lawful swap rather than gambling. It often means that the exchange filed a certification making that representation about its own product.
The filing volume also makes comprehensive advance review unrealistic. A recent page of the CFTC's designated-contract-market product database displayed more than two dozen Kalshi product certifications dated September 4, 2026 alone, many concerning whether named ski resorts would open or close during specified seasons or time periods. And in July 2026, the CFTC's Division of Market Oversight issued an advisory specifically warning against broad, template-style certifications that combine many potential event-contract variations into a single filing because the practice limits the staff's ability to assess whether the submission contains the required information and analysis.
The concern is structural. A process created to let established exchanges introduce conventional products efficiently is now being used to generate sprawling categories of wagers at digital-platform speed. The regulator is expected to identify, analyze, and stop problematic products within a system designed to let the exchange move first. The sheer scale and speed make meaningful product-by-product scrutiny extraordinarily difficult.
Kalshi Found a Regulatory Seam and Tried to Drive a Truck Through It
Kalshi's business strategy rests on a regulatory seam. First, operate a CFTC-registered market. Second, express a wager as a binary event contract. Third, self-certify that contract as compliant with federal commodities law. Fourth, argue that the CFTC's jurisdiction is exclusive and that state gambling regulators therefore have no authority over the product.
It is an aggressive and commercially valuable theory. According to New Jersey's petition, sports accounted for 90 percent of Kalshi's trades and 95 percent of its revenue in 2025. But a successful business model does not establish that Congress intended the result. Nothing about the financial crisis that produced Dodd-Frank suggests Congress meant to federalize sports gambling, displace decades of state regulation, or turn the CFTC into the nation's sole gaming regulator through an expansive definition tucked into a financial-reform statute.
The statutory structure points the other way. Federal law expressly identifies gaming and activities unlawful under federal or state law as subjects that can render an event contract contrary to the public interest. The CFTC's own regulation states that a registered entity may not list certain contracts involving, relating to, or referencing gaming or unlawful activity. It is difficult to reconcile those provisions with the claim that the same statutory scheme silently neutralized state gambling law whenever an exchange calls the bet a swap.
States Should Not Lose Their Traditional Authority by Label
States have regulated gambling for generations. Their laws address licensing, minimum age, location, consumer protection, problem-gambling safeguards, game integrity, taxation, and the particular policy choices of their residents. Some states permit sports betting under detailed conditions. Others prohibit it. Federal commodities regulation serves a different purpose and does not automatically reproduce those protections.
Kalshi's theory would allow the exchange's choice of form to override those state choices. The same customer could place the same economic wager on the same game, but state law would apply if the wager were offered by a sportsbook and disappear if it were formatted as a binary contract on a designated contract market. That is regulation by label rather than substance.
Congress can preempt state law when it chooses to do so. But a conclusion this sweeping should require a clear congressional decision, particularly in an area of historic state authority. It should not arise by implication from a broadly worded definition enacted to regulate derivatives after the 2008 financial crisis.
Conclusion
The Supreme Court should take the question seriously. The dispute is not about whether prediction markets can sometimes convey useful information or whether every event contract lacks a legitimate economic purpose. It is about whether the outer limit of federal derivatives law is broad enough to convert ordinary gambling into an exclusively federal financial product and, in doing so, remove the states from the field.
In my view, it is not. A contract tied to a genuine financial or commercial exposure may properly function as a derivative. A bet on who wins a tennis match, what song a performer sings first, or whether an announcer uses a particular phrase does not become one because it trades on an exchange. Kalshi may have found a gap in the existing regulatory framework, but that gap should not be mistaken for a congressional command to erase state gambling law.
Calling these products event contracts may sound innovative. Calling them swaps may sound regulated. For most of the sports and entertainment products at issue, however, the simpler description is the correct one: they are bets, and states should remain free to regulate them as such.
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