Federal Court Sides with Kalshi: State Gambling Laws Can’t Stop Prediction Markets

TLDR

• The Third Circuit Court of Appeals delivered a 2-1 decision preventing New Jersey from applying its gambling regulations to Kalshi’s platform
• Federal Commodity Exchange Act provisions were determined to supersede state-level gambling regulations for sports-event prediction contracts
• The CFTC maintains it has sole regulatory authority over prediction markets, classifying event contracts as swaps under federal law
• Federal courts nationwide are delivering inconsistent judgments, with the Third Circuit supporting Kalshi while the Ninth Circuit backs Nevada’s position
• The CFTC launched lawsuits against Arizona, Connecticut, and Illinois in recent weeks to prevent state-level regulation of prediction markets

A United States federal appeals court has prevented New Jersey regulators from closing down Kalshi’s sports-focused prediction markets, determining that federal regulatory frameworks hold precedence over state gambling legislation.

On Monday, the US Court of Appeals for the Third Circuit issued a 2-1 decision supporting Kalshi, the prediction market operator. The panel determined that New Jersey gaming regulators lacked authority to pursue enforcement measures against the platform.

According to the judges, Kalshi’s sports-focused event contracts fall under federal Commodity Exchange Act jurisdiction. This classification means state gambling statutes cannot govern these activities.

The panel emphasized that the CFTC has neither deemed Kalshi’s sports-related contracts contrary to public welfare nor initiated any enforcement proceedings against the company.

In a statement posted on X, Kalshi CEO Tarek Mansour described the decision as “a big win for the industry and millions of users.”

Circuit Judge Jane Roth issued a dissenting opinion, characterizing Kalshi’s offerings as “sports gambling” that are “virtually indistinguishable” from products available on traditional sports betting platforms. She referenced contracts involving NFL game outcomes, point spreads, and scoring totals as evidence.

A Patchwork of Conflicting Court Rulings

Government authorities throughout the United States have initiated legal challenges and issued cease-and-desist directives targeting prediction market operators, including Kalshi and Polymarket. State officials contend these platforms breach state gambling statutes.

Judicial outcomes have varied significantly. While Monday’s Third Circuit judgment supports Kalshi, the Ninth Circuit refused last month to prevent Nevada from obtaining a temporary restraining order against the identical company.

A Nevada state judge also prolonged restrictions on Kalshi only days prior to Monday’s appeals court decision. Another Ninth Circuit proceeding involving several platforms is scheduled for later this month.

CFTC Pushes Back Against State Regulators

Since assuming leadership, CFTC Chair Michael Selig has prioritized prediction market oversight. He maintains the CFTC possesses “exclusive jurisdiction” over event-based contracts.

The previous week, the CFTC initiated legal action against Arizona, Connecticut, and Illinois to block what it characterized as unauthorized state attempts to govern prediction markets.

During remarks at Vanderbilt University on Monday, Selig explained that the agency’s commodity definition is comprehensive and treats sports events, political outcomes, and conventional commodities like corn and grains under the same regulatory umbrella.

The CFTC additionally submitted an amicus brief articulating its position to the Ninth Circuit before next week’s scheduled hearing.

The jurisdictional dispute between state and federal authorities regarding prediction market regulation continues, with numerous cases advancing through the judicial system concurrently.

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