Kalshi has responded to New Jersey’s core argument that its sports contracts fall outside the scope of federal commodities law.
In a reply brief filed on April 23, the company asserts its event contracts meet the definition of “swaps” under the Commodity Exchange Act (CEA), citing measurable economic effects tied to the events in question.
This filing comes shortly after New Jersey argued that Kalshi’s sports markets do not qualify as swaps because they are not linked to “a potential financial, economic, or commercial consequence,” as required by the statute. That argument formed the foundation of New Jersey’s challenge and targeted Kalshi’s reliance on federal preemption.
Kalshi’s reply does not dispute the statutory language but instead argues events like the Masters Tournament and NCAA March Madness carry tangible financial consequences and are, therefore, under the CEA’s purview.
Kalshi points to ratings and economic impacts
Kalshi’s reply highlights specific economic outcomes linked to the events it covers.
“When Rory McIlroy won in a sudden-death playoff,” the brief states, “television viewership rose by 33% over 2024, with enormous financial consequences for CBS and advertisers.”
The company also references Saint Peter’s University’s 2022 NCAA Tournament run, which had “millions in financial implications for the school, its community, and its conference.”
These examples illustrate Kalshi’s position that sports events frequently have real economic impacts, even if the individual contracts are structured as binary options. Kalshi argues these financial outcomes fulfill the CEA’s requirement of a “potential economic consequence” for swaps, placing sports contracts within the Commodity Futures Trading Commission (CFTC) jurisdiction.
Distinguishing entertainment from gambling
Kalshi addresses a critical point raised by New Jersey concerning prior litigation over political contracts.
Previously, the company stated, “contracts relating to games, activities conducted for diversion or amusement, are unlikely to serve any ‘commercial or hedging interest.'” New Jersey highlighted this as an admission suggesting sports contracts do not meet the swap definition.
Kalshi asserts that the quote was taken out of context in its reply. The company indicates it referred to contracts with no broader economic relevance, such as “prop bets” on a coin toss or the color of Gatorade. Kalshi emphasizes it does not offer those types of contracts.
Kalshi argues sports prediction markets differ from traditional sportsbook wagers as they are restricted to outcomes with broader economic significance. In essence, Kalshi says that not all game-related contracts are merely for “diversion or amusement”, and its contracts could provide a legitimate economic hedge.
Legal questions about use and purpose
The reply brief emphasizes the economic impact of the events themselves. The court must determine whether this satisfies the statutory requirement that swaps involve events associated with commercial consequences.
The CEA focuses on the relationship between the contract and broader economic outcomes. New Jersey contends these contracts lack a hedging, price-discovery, or commercial function for participants, suggesting the event’s economic impact, though genuine, may be too indirect to satisfy the statute.
Kalshi maintains that the statute does not explicitly require contracts to be used for hedging. The company argues that it is sufficient that the underlying event has substantial commercial effects on the broader economy.
Broader preemption arguments continue
Kalshi also reiterates its broader legal argument: Once a contract is listed and cleared through a CFTC-regulated designated contract market (DCM), state laws cannot restrict or prohibit it.
Kalshi argues their position aligns with the 1974 amendments to the CEA, which established exclusive federal jurisdiction over DCMs. The company points to the federal regulatory framework it adheres to as a DCM, painting itself not as an unlicensed sportsbook, but as a DCM which is already regulated closely by the CFTC.
Kalshi frames the case as a question of appropriate regulatory authority. As a DCM, the company argues that the CFTC, rather than a patchwork of state regulators, should oversee these contracts.
Next steps
The New Jersey court will now consider both filings as it evaluates whether Kalshi is entitled to a preliminary injunction against the state’s cease-and-desist order. Although Nevada granted preliminary relief earlier this month, the legal issues in New Jersey center more explicitly on statutory definitions, particularly whether the contracts qualify as swaps.
If the court determines Kalshi’s sports contracts do not meet the statutory definition, the case may bypass preemption questions entirely. Contracts would fall outside federal jurisdiction, subjecting them to New Jersey law.
Kalshi’s reply emphasizes the economic significance of the underlying events. Whether that argument meets the statutory requirement and how the court defines “commercial consequence” will likely determine the case’s outcome.
