A federal appeals court has handed Kalshi a significant victory, ruling that New Jersey cannot temporarily ban the sports betting platform. The Third Circuit Court of Appeals found that Kalshi's products are subject to federal law, specifically the Commodity Exchange Act, rather than state gambling laws. The court noted that Kalshi had self-certified compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not determined that Kalshi's sports-related event contracts were contrary to the public interest.
The ruling rejected New Jersey's argument that Kalshi's event contracts were not covered by the Act, stating that the state's proposed requirements were too stringent. The decision comes as states across the US have filed lawsuits or issued cease-and-desist orders against prediction market providers, including Kalshi, alleging that their sports-related contracts violate state gambling laws.
The CFTC has argued that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The ruling has significant implications for the industry, with different courts issuing conflicting decisions. While the Third Circuit's ruling suggests that prediction market providers may prevail in their argument that federal law preempts state rules, the Ninth Circuit has declined to block another state enforcement action, and further hearings are scheduled.