New Jersey asks the Supreme Court to take on prediction markets

New Jersey has asked the Supreme Court to review a case that could determine whether states or the federal government have oversight of prediction markets.

"We're calling on the Supreme Court to resolve this issue and recognize that Congress did not silently make the sports-betting industry immune from state law," said Jennifer Davenport, New Jersey's attorney general in a statement.

In the petition, New Jersey is asking the Supreme Court to take up an April ruling from the 3rd U.S. Circuit Court of Appeals, which found that all event contracts are a type of derivative that's regulated at the federal level by the Commodity Futures Trading Commission.

"So long as a company offers its sports bets on a CFTC registered market, they claim, state sports-gambling laws all fall away," the petition said. 

In a statement to CNBC, Kalshi reiterated its platform is a financial exchange.

"We disagree with New Jersey's filing. Kalshi is an open, nationwide financial exchange. It cannot be regulated by 50 different regulators. Both the Third Circuit and the District of New Jersey sided with Kalshi because the CFTC's exclusive jurisdiction preempts state law," said Dani Lever, the platform's spokeswoman. We remain confident in the lower courts' rulings, and nothing in New Jersey's filing today changes our view."

New Jersey's move to get the Supreme Court involved in the dispute is the latest development in a battle between the CFTC and dozens of states for oversight of prediction markets.

While the CFTC views sports-related event contracts on prediction markets as "swaps," 44 state attorneys general assert that these contracts amount to sports betting — and thus are under the purview of the states.

New Jersey's petition comes after the 9th U.S. Circuit Court of Appeals ruled on Friday that sports-related event contracts are not swaps regulated by the CFTC. That court rejected Kalshi and Crypto.com's appeal for injunctive relief against the Nevada Gaming Control Board. This finding also contradicted the 3rd Circuit's decision.

The split between the rulings from the 3rd and 9th circuit courts have provided an opportunity for the Supreme Court to get involved and review which regulator should have oversight of prediction markets, Bank of America said in a Monday note.

"Based on our conversations with legal experts, we think it is still possible the Supreme Court waits until next year before hearing the case as there are still pending cases in other federal circuits," the Bank of America note said. 

New Jersey's petition argues the split between circuits "justifies certiorari," which is when the higher court requests to review a lower court's decision. 

"The Third Circuit's profoundly important decision is also profoundly wrong," the petition said. 

The CFTC did not respond for comment.

Shares for gambling operators DraftKings and FanDuel's parent company Flutter Entertainment, were both up by more than 5% after New Jersey filed its petition.

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.