Federal Appeals Court Rules in Favor of Kalshi, Blocking New Jersey's Attempt to Shut Down Sports Markets

In a significant ruling, a federal appeals court has decided that New Jersey is not permitted to temporarily ban the operations of Kalshi, a prediction market provider, handing the company a crucial victory against a wave of state-led enforcement actions. The Third Circuit Court of Appeals, in a 2-1 decision, found that Kalshi's offerings are subject to federal law under the Commodity Exchange Act, rather than being governed by New Jersey's state gambling laws. The ruling stated that since Kalshi had self-certified compliance with applicable laws and regulations, its event contracts were presumed to be approved under federal law, and to date, the Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts are contrary to the public interest.

The CFTC has also not initiated any enforcement actions against such contracts. New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' covered by the Act because the outcome of a sports game is not connected to a financial, economic, or commercial instrument or measure.

However, the court found that this requirement exceeded what the Commodity Exchange Act mandates. In a dissenting opinion, Circuit Judge Jane Roth noted that New Jersey's state rules did not undermine the objectives of the Commodity Exchange Act and characterized the products available on Kalshi's platform as 'sports gambling,' citing examples such as betting on the winner of a National Football League game. The ruling comes as states across the U.S.

have begun filing lawsuits or issuing cease-and-desist orders to prediction market providers like Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has maintained that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts state rules. Courts have issued varying rulings, with some state courts favoring the states and federal district courts being more divided.

Appeals courts have also been inconsistent, with the Ninth Circuit recently declining to block a state enforcement action from Nevada. CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's 'exclusive jurisdiction over these markets,' noting the broad definition of commodity and statute that includes events on sports, politics, and other areas, without distinguishing between types of event contracts.