In a significant victory for prediction market provider Kalshi, a federal appeals court has ruled that New Jersey cannot temporarily ban the company's operations. The Third Circuit Court of Appeals made this decision based on the fact that Kalshi's products fall under the federal Commodity Exchange Act, rather than being subject to New Jersey's state gambling laws. The ruling, which was passed with a 2-1 majority, stated that Kalshi had self-certified compliance with applicable laws and regulations, and that the Commodity Futures Trading Commission (CFTC) had not determined its sports-related event contracts to be against the public interest. This decision is a crucial development in the ongoing debate between states and the federal government regarding the regulation of sports betting and prediction markets.
The CFTC has argued that such markets are governed by the Commodity Exchange Act, which preempts state laws. However, some states have filed lawsuits and issued cease-and-desist orders, alleging that these markets violate state gambling laws. The ruling may have implications for other companies in the industry, including Polymarket, which has also faced lawsuits and enforcement actions from states. The CFTC has filed an amicus curiae brief in support of Kalshi, emphasizing the importance of defending its exclusive jurisdiction over these markets.
According to CFTC Chairman Michael Selig, the federal regulator's definition of a commodity is broad and includes events such as sports and politics, in addition to traditional commodities like grains.