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

In a significant decision, a federal appeals court has ruled that the state of New Jersey cannot temporarily ban the operations of prediction market provider Kalshi. The ruling, made by a panel of the Third Circuit Court of Appeals, determined that Kalshi's products fall under the federal Commodity Exchange Act, rather than being subject to New Jersey's state gambling laws. According to the court, Kalshi had self-certified its compliance with applicable laws and regulations, and as such, its event contracts were presumptively approved under federal law. The Commodity Futures Trading Commission (CFTC) has not initiated any enforcement actions against sports-related event contracts, further supporting the court's decision.

The ruling stated that New Jersey's argument that Kalshi's event contracts are not covered by the Act because they are not 'joined or connected' with a financial, economic, or commercial instrument or measure, raises the bar beyond what the Commodity Exchange Act requires. In a dissenting opinion, Circuit Judge Jane Roth argued that New Jersey's state rules do not undermine the congressional objectives under the Commodity Exchange Act and that the products available on Kalshi's platform constitute sports gambling. The decision comes as states across the US have begun 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 maintained that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts state rules.

The ruling may have significant implications for the ongoing debate over the regulation of prediction markets, with different courts issuing conflicting decisions. 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.