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 determined that New Jersey cannot temporarily ban the operations of prediction market provider Kalshi, handing the company a crucial victory amidst a wave of state-led enforcement actions. The Third Circuit Court of Appeals panel, in a 2-1 decision, found that Kalshi's products fall under the federal Commodity Exchange Act, rendering New Jersey state gambling laws inapplicable.

According to the majority ruling, Kalshi had self-certified compliance with relevant laws and regulations, thereby ensuring presumptive approval under federal law. The Commodity Futures Trading Commission (CFTC) has yet to determine that Kalshi's sports-related event contracts are contrary to the public interest. New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' covered by the Act, but the court rejected this argument, stating that the proposed requirement would set an excessively high bar.

In a dissenting opinion, Circuit Judge Jane Roth countered that New Jersey's state rules did not undermine congressional objectives under the Commodity Exchange Act, and that the products offered on Kalshi's platform constituted sports gambling. The ruling is the latest development in a series of lawsuits and cease-and-desist orders filed by states against prediction market providers, including 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. The decision by the Third Circuit Court of Appeals suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act takes precedence over state rules, although different courts have issued conflicting rulings. CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's exclusive jurisdiction over these markets, noting that the definition of commodity and statute is broad and inclusive, encompassing events on sports, politics, and other areas.