States can’t regulate Kalshi, federal court says
The ruling was the first by a federal appeals court to weigh in on whether states can regulate prediction market platforms
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New Jersey gaming regulators lost their bid Monday to restrict Kalshi's prediction market platform, after a federal appeals court held that the state has no authority over residents who use the service to make financial bets on sports outcomes. At issue was whether federal or state law governs the contracts Kalshi offers. A Philadelphia-based court's three-judge panel determined that such authority rests exclusively with the U.S. Commodity Futures Trading Commission, Reuters reports.
No federal appeals court had previously weighed in on the core controversy dividing prediction market platforms and state gaming authorities, making Monday's 2-1 decision a legal landmark in that fight. Circuit Judge David Porter, writing for the majority, reasoned that the Commodity Exchange Act draws a clear boundary: Once a contract qualifies as a swap listed on a federally licensed designated contract market, state regulators are locked out.
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"Kalshi's sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction," Porter wrote.
"This is a big win for the industry and millions of users," Kalshi CEO Tarek Mansour said in a post on X $TWTR.
The litigation traces back to a cease-and-desist order New Jersey issued to Kalshi, asserting that listing sports-event contracts ran afoul of state gambling statutes, among them a ban on collegiate wagering. Kalshi responded with a federal lawsuit, contending its contracts are swaps subject solely to CFTC oversight under the Commodity Exchange Act. When a district court granted Kalshi a preliminary injunction, New Jersey took the fight to the appellate level.
In dissent, Circuit Judge Jane Richards Roth argued that what Kalshi sells is functionally gambling, quoting her own characterization that the products are "virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel." New Jersey Attorney General Jennifer Davenport issued a statement calling the decision deeply flawed and vowing to weigh next steps, warning it would let "certain companies to offer sports gambling in our States without following the careful gaming rules that everyone else follows."
Among the remedies available to New Jersey is a petition for en banc review before the full 3rd Circuit, according to Reuters.
The CFTC, which last week sued Arizona, Connecticut, and Illinois in a separate effort to halt state-level enforcement against prediction markets, embraced Monday's outcome. "Congress gave the CFTC exclusive jurisdiction over trades on DCMs, and this decision affirms the goals of Congress," CFTC spokesperson Brooke Nethercott said in a statement.
The ruling does not settle the broader legal battle. The 9th U.S. Circuit Court of Appeals in San Francisco is set to take up a parallel dispute in the coming days, according to Reuters. Lower courts have split on the issue in preliminary rulings, and in Nevada, a state judge said Friday that he intends to enjoin Kalshi from listing contracts that conflict with that state's gaming statutes.
The legal fight over prediction markets is unfolding alongside mounting scrutiny in Congress, where more than 10 bills have been introduced this year to impose new restrictions on platforms such as Kalshi and Polymarket. Among them is a bipartisan measure that would bar CFTC-registered exchanges from listing contracts resembling sports betting or casino gaming. Thirty-nine state attorneys general had previously sided with Nevada in a separate effort to enforce state gambling laws against Kalshi.