In a significant legal victory for the prediction market industry, a federal appeals court has ruled that New Jersey cannot temporarily ban the platform Kalshi. A panel of the Third Circuit Court of Appeals voted 2-1 on Monday, finding that the state could not bring an enforcement action against Kalshi because its products are governed by the federal Commodity Exchange Act, not state gambling laws.
The majority opinion, signed by Chief Judge Michael Chagares and Circuit Judge David Porter, stated that Kalshi had self-certified its sports-related event contracts for compliance with federal law, and the Commodity Futures Trading Commission (CFTC) had not deemed them contrary to the public interest. The ruling explicitly rejected New Jersey's argument that these contracts are not "swaps" under the Act because sports outcomes are not connected to a financial instrument, stating this "raises the bar beyond what the Act requires."
In a dissent, Circuit Judge Jane Roth argued the state rules did not undermine congressional objectives and that Kalshi's products constitute "sports gambling," citing contracts on NFL game winners and point spreads as examples.
This decision is a crucial early win for the CFTC in an escalating nationwide conflict. Multiple states, including Arizona and Illinois, have filed lawsuits or issued cease-and-desist orders against prediction market providers like Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC contends these event contracts are swaps under its exclusive federal jurisdiction, which preempts state rules.
CFTC Chairman Michael Selig celebrated the ruling on social media, stating it "reaffirms Congress’ intent for the CFTC to have exclusive regulatory jurisdiction over trades on DCMs [Designated Contract Markets]." Speaking at a Vanderbilt University and Blockchain Association event, Selig emphasized the breadth of the CFTC's authority, stating its definition of a commodity "includes events on sports, it includes events on politics, it includes corn and grains." The CFTC has also filed an amicus brief supporting its position in an upcoming Ninth Circuit hearing.
However, the legal landscape remains mixed. While the Third Circuit's decision supports federal preemption, the Ninth Circuit recently declined to block a similar enforcement action from Nevada, allowing that state to proceed against Kalshi. This patchwork of rulings sets the stage for further appellate battles, with another Ninth Circuit hearing scheduled for later this month.
