US 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 provider. The Third Circuit Court of Appeals decided in a 2-1 vote that Kalshi's products fall under the federal Commodity Exchange Act, rather than being subject to New Jersey's state gambling laws.

The ruling stated that Kalshi had self-certified compliance with applicable laws and regulations, and the event contracts were presumptively approved under federal law. The Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts are against the public interest, and has not commenced any enforcement actions against such contracts.

The ruling rejected New Jersey's argument that Kalshi's event contracts are not covered by the Act, as the proposed 'joined or connected' requirement would raise the bar beyond what the Commodity Exchange Act requires. In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey's state rules did not undermine the congressional objectives under the Commodity Exchange Act, and that the actual products available on Kalshi's platform constitute sports gambling. The decision comes as states across the US have been filing lawsuits or issuing cease-and-desist orders to prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws. The CFTC has contended that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts these state rules.

The ruling is the latest in a series of mixed decisions from different courts, with some state courts issuing temporary restraining orders or preliminary injunctions in favor of the states, while federal district courts have been more divided. 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 very broad and includes events on sports, politics, and other areas.