Key Points
- The Third Circuit Court of Appeals delivered a 2-1 decision preventing New Jersey from applying state gambling regulations to Kalshi’s platform
- Federal Commodity Exchange Act provisions take precedence over state-level gambling statutes for Kalshi’s event-based contracts
- The CFTC maintains sole regulatory authority over prediction market platforms, classifying event contracts as swaps under federal oversight
- Federal courts nationwide have produced contradictory decisions, with the Third Circuit supporting Kalshi while the Ninth Circuit ruled for Nevada authorities
- Federal regulators recently filed lawsuits against Arizona, Connecticut, and Illinois for attempting to impose state-level controls on prediction markets
A federal appeals panel has prevented New Jersey gaming regulators from shutting down Kalshi’s sports-related prediction markets, determining that federal statutes hold authority over state gambling regulations.
The Third Circuit Court of Appeals issued its 2-1 decision on Monday, siding with the prediction market operator. The panel determined that New Jersey’s gaming commission lacked standing to pursue enforcement measures against Kalshi.
The appellate judges concluded that Kalshi’s sports-related event contracts fall within the scope of federal Commodity Exchange Act protections. This classification means state gambling statutes cannot reach these products.
“Kalshi self-certified compliance with the applicable laws and regulations, so those event contracts were presumptively approved under federal law,” the majority ruling said.
The court emphasized that the CFTC has neither determined Kalshi’s sports-related contracts violate public interest standards nor initiated any enforcement proceedings against the company.
Kalshi CEO Tarek Mansour described the decision as “a big win for the industry and millions of users” through a statement posted on X.
Circuit Judge Jane Roth authored a dissenting opinion, characterizing Kalshi’s offerings as “sports gambling” that remain “virtually indistinguishable” from products available on traditional wagering platforms. Her dissent highlighted contracts covering NFL game outcomes, point spreads, and scoring totals as supporting evidence.
Contradictory Judicial Decisions Creating Legal Uncertainty
Multiple states have initiated legal challenges and issued cease-and-desist directives targeting prediction market operators, including Kalshi and Polymarket. State attorneys general contend these platforms operate in violation of established gambling statutes.
Court decisions have varied significantly across jurisdictions. While the Third Circuit’s Monday opinion supports Kalshi’s position, the Ninth Circuit refused last month to prevent Nevada from obtaining a restraining order against the identical company.
A Nevada district judge extended restrictions on Kalshi’s operations mere days before the Third Circuit issued its ruling. The Ninth Circuit has scheduled another hearing involving several companies for later this month.
Federal Regulator Challenges State Authority
CFTC Chair Michael Selig has prioritized prediction market oversight since assuming leadership. He maintains that the CFTC possesses “exclusive jurisdiction” over event-based contracts.
The commission filed lawsuits last week against Arizona, Connecticut, and Illinois, challenging what it characterized as unauthorized attempts by those jurisdictions to impose regulatory frameworks on prediction markets.
During a Monday address at Vanderbilt University, Selig explained that the agency interprets commodity definitions expansively, applying equal treatment to sports events, political contests, and agricultural products like corn and grains.
The CFTC submitted an amicus brief advancing its jurisdictional position to the Ninth Circuit before next week’s scheduled hearing.
The jurisdictional dispute between state authorities and federal regulators over prediction market oversight continues to develop, with numerous cases progressing through different court systems concurrently.
