In a significant victory for sports prediction market provider Kalshi, a federal appeals court has ruled that New Jersey cannot temporarily ban the platform. The Third Circuit Court of Appeals decision, made with a 2-1 majority vote, determined that Kalshi's products fall under the federal Commodity Exchange Act, rather than New Jersey's state gambling laws.
This ruling comes as states across the US have begun filing lawsuits and issuing cease-and-desist orders against prediction market providers like Kalshi, alleging violations of state gambling laws. The Commodity Futures Trading Commission (CFTC) has argued that prediction markets are swaps governed by the Commodity Exchange Act, which supersedes state regulations. The court's decision aligns with this stance, stating that Kalshi's sports-related event contracts are presumptively approved under federal law, as the CFTC has not deemed them contrary to the public interest.
New Jersey had argued that Kalshi's event contracts do not qualify as 'swaps' under the Act, but the court found this argument to be overly restrictive. The ruling has significant implications for the ongoing debate over the regulation of sports prediction markets, with different courts issuing conflicting decisions. While this ruling favors prediction market providers, other courts have ruled in favor of states seeking to enforce their gambling laws.
The CFTC has reaffirmed its commitment to defending its exclusive jurisdiction over these markets, with Chairman Michael Selig emphasizing the importance of a broad definition of commodities that encompasses various events, including sports and politics.