New Jersey cannot regulate Kalshi’s prediction market, federal appeals court rules

A federal appeals court ruled on Monday that New Jersey gaming regulators cannot prevent Kalshi from allowing people in the state to use its prediction market to place financial bets on the outcome of sporting events.
A three-judge panel of the Philadelphia-based third US circuit court of appeals ruled 2-1 in finding that the US Commodity Futures Trading Commission has exclusive jurisdiction over the sports-related event contracts that Kalshi allows people to trade on its platform.
The ruling marked the first time a federal appeals court has ruled on what has become the central issue in an escalating battle over the ability of state gaming regulators to police the activity of prediction market operators.
“This is a big win for the industry and millions of users,” Tarek Mansour, Kalshi’s CEO, said in a social media post on X.
Kalshi and companies like it allow users to place trades and profit from predictions on events such as sports and elections. States argue that firms including Kalshi are operating without required state licenses, in violation of gaming laws, including bans on wagers by those under 21.
Those states include New Jersey, which last year sent Kalshi a cease-and-desist letter stating that its listing of sports-related event contracts on its platform violated state gambling laws that prohibit betting on collegiate sports.
Kalshi sued the state, arguing its event contracts qualify as “swaps”, a type of derivative contract, that under the Commodity Exchange Act can only be regulated by the CFTC, which had granted the company a license to operate a designated contract market (DCM).
A lower-court judge had sided with New York-based Kalshi and issued a preliminary injunction, prompting New Jersey to appeal. But a majority of the judges on the third circuit panel concluded the Commodity Exchange Act probably pre-empted state law.
“Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction,” US circuit judge David Porter wrote.
The ruling was in line with the position advanced in other litigation by the CFTC under Donald Trump’s administration. The regulator last week sued Arizona, Connecticut and Illinois to prevent them from pursuing what it called unlawful efforts to regulate prediction markets.
“Congress gave the CFTC exclusive jurisdiction over trades on DCMs, and this decision affirms the goals of Congress,” Brooke Nethercott, a CFTC spokesperson, said in a statement.
US circuit judge Jane Richards Roth dissented, saying Kalshi was facilitating gambling and that its “offerings were virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel”.
Jennifer Davenport, the New Jersey attorney general, said in a statement her office was evaluating its options, as the ruling will allow “certain companies to offer sports gambling in our states without following the careful gaming rules that everyone else follows”.
Her office could potentially ask the full third circuit to rehear the case. The issue is also pending before several other courts, including a different federal appeals court in San Francisco that is set to hear arguments next week.
A Nevada judge on Friday said he would issue an injunction preventing Kalshi from offering event-based contracts that run afoul of state gaming law, and a Massachusetts judge had issued a similar ruling that is on hold pending appeal.