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

A federal appeals court has handed Kalshi a significant victory, ruling that New Jersey cannot temporarily ban the prediction market platform. The Third Circuit Court of Appeals panel, in a 2-1 decision, found that Kalshi's products fall under the federal Commodity Exchange Act, taking precedence over New Jersey's state gambling laws. The ruling stated that Kalshi had self-certified compliance with applicable laws and regulations, and the Commodity Futures Trading Commission (CFTC) had not determined that the company's sports-related event contracts were against the public interest.

The CFTC has not initiated any enforcement actions against such contracts, according to the ruling. The decision noted that New Jersey's argument that Kalshi's event contracts are not covered by the Commodity Exchange Act because they are not linked to a financial instrument or measure 'raises the bar beyond what the Act requires.' Circuit Judge Jane Roth dissented, arguing that New Jersey's state rules did not undermine the objectives of the Commodity Exchange Act and that the products on Kalshi's platform constitute sports gambling. The ruling comes as states across the US have filed lawsuits or issued cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has maintained that prediction markets are swaps governed by the Commodity Exchange Act, which supersedes state rules.

Different courts have issued conflicting rulings, with some state courts granting temporary restraining orders or preliminary injunctions in favor of the states, while federal district courts have been more divided. Appeals courts have also been inconsistent, with the Ninth Circuit recently declining to block a state enforcement action in Nevada, allowing the state to secure a temporary restraining order and preliminary injunction against Kalshi.

CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's exclusive jurisdiction over these markets, stating that the definition of commodity and statute is broad and includes events on sports, politics, and other areas.