Securities Regulation Daily Wrap Up, FEDERAL PREEMPTION—U.S.: State lawmakers urge Supreme Court to maintain state gambling authority over prediction markets, (Sep 24, 2026)

By Lene Powell, J.D.

The group said the Supreme Court previously authorized states to regulate sports gambling, and federal preemption would fly in the face of this.

In a new Supreme Court amicus brief, a group of state lawmakers warned that federal preemption of state gaming laws would cause “substantial harm and confusion.” The National Council of Legislators from Gaming States (NCLGS) asked the Court to grant New Jersey’s petition for certiorari challenging a Third Circuit decision that blocked the state from enforcing its gaming laws against sports-related event contracts on the Kalshi exchange (Flaherty v. Kalshi, No. 26-299 (S. Ct. Sept. 22, 2026)).

“NCLGS urges this Court to grant the Petition and ensure the long-standing, state-level regulation of gaming is considered, preserved, and enforced as to all sports betting activities,” the brief stated.

NCLGS sided with New Jersey in challenging the Third Circuit decision, which found that the state’s gaming laws were preempted by the Commodity Exchange Act as to Kalshi’s sports-related contracts. NCLGS says certiorari is needed to resolve a split with the Ninth Circuit’s decision in Kalshi v. Assad, which NCLGS believes decided correctly that Nevada’s gaming laws were not federally preempted as to Kalshi.

NCLGS is an organization of state lawmakers who serve on gaming oversight committees in state legislatures. It focuses on developing state-level best practices for gaming regulation and legislation.

State oversight intended. NCLGS argued that states are the “traditional and intended regulators of gambling activities.”

In Murphy v. NCAA, 584 U.S. 453 (2018), the Supreme Court overturned a federal law prohibiting states from authorizing sports gambling, stating that “Americans have never been of one mind about gambling,” and states may step forward if Congress elects not to regulate gambling directly. After Murphy, some states built regulatory schemes around newly permitted sports gambling activities.

“Following from this deference, states such as those NCLGS’ members represent have enacted laws fitting the policy choices and needs of their respective constituents,” NCLGS wrote. “This is especially evident in the area of sports gambling post-Murphy [].”

NCLGS also noted that states are congressionally authorized and directed to establish gaming compacts that grant tribal governments certain agreed allowances and exclusivities.

According to NCLGS, the Ninth Circuit “correctly found it to be ‘implausible’ that Congress would preempt gaming regulation at the state level using broad and ‘expansive’ terms in a ‘Wall Street reform bill.’”

Court should grant New Jersey’s petition. NCLGS pressed the court to grant certiorari, warning that the Third Circuit’s decision “endangers this clear tradition and policy of state gambling regulation.”

“Whether Kalshi may offer a service marketed as ‘sports betting’ in all 50 states and absent any state regulation goes ‘to the heart of the States’ police power,’” the group wrote.

“If the regulation of [Kalshi’s] self-described ‘sports betting’ activities is wholly preempted by federal law, then this would call into question many state laws, regulations, and negotiated tribal gaming compacts.”

The group further warned that if Kalshi’s contracts cannot be regulated by states, then casinos, pari-mutuel operators, and other heavily regulated entities “are certain to amend their business and products to seek the same status.”

The group added that federal preemption would impose a “one-size-fits-all rule” for sports gambling across the nation. “This would fly in the face of the clear tradition and policy of state-level gambling as recognized in Murphy and as effectuated through the state and federal laws and compacts cited herein.”

The brief said the Court should grant the petition so states can operate with clarity to protect the welfare of their citizens.

This is case No. 26-299.

Attorneys: Jeremy Michael Feigenbaum, Office of the Attorney General for Mary Jo Flaherty and Jennifer Davenport. Neal Kumar Katyal (Milbank LLP) for KalshiEX, LLC.

Companies: KalshiEX, LLC

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