Court Sides With Kalshi, Deals Blow to State Control Over Sports Prediction Markets

Prediction platform Kalshi can continue offering sports markets in New Jersey after a federal appeals court ruled on Monday that the state cannot enforce its gambling laws against the company’s event contracts.

In a 2-1 decision, a Third Circuit panel found that the Commodity Futures Trading Commission has exclusive authority over Kalshi’s sports-related contracts under the Commodity Exchange Act, as Reuters reported.

The ruling is the first federal appellate decision on a dispute that has become central to a wider clash between state gambling regulators and federally registered prediction market platforms.

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Federal Pre-Emption Wins the Day

The court’s majority said the key issue was Kalshi’s use of the federal self-certification process to list the contracts. Because the CFTC did not object or bring enforcement action after certification, the contracts were treated as presumptively approved under federal law. 

That approval, the panel held, blocks states from treating the same products as illegal or unlicensed gambling.

The decision gives Kalshi immediate protection from state enforcement in New Jersey and may strengthen the position of other CFTC-registered prediction platforms facing similar pressure elsewhere in the United States. 

The ruling suggests that federally registered operators can argue state regulators are pre-empted from intervening when contracts have been self-certified and left unchallenged by the CFTC.

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Circuit Judge Jane Richards Roth dissented, writing that Kalshi was facilitating gambling and offering products that were effectively the same as those available through online sportsbooks. 

Her view aligns with arguments made by New Jersey regulators and other state authorities that sports event contracts function as betting products despite being structured as financial instruments.

New Jersey Attorney General Jennifer Davenport said the state is reviewing the ruling and considering next steps, including seeking a rehearing before the full Third Circuit or appealing to the US Supreme Court. 

The case began after the state’s Division of Gaming Enforcement moved against Kalshi, arguing that sports event contracts should fall under New Jersey’s gambling licensing rules.

The ruling is also significant for crypto-adjacent prediction platforms. Operators that are not registered with the CFTC, or that function outside US federal oversight, cannot use the same legal defense. 

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