New Jersey cannot regulate Kalshi's prediction market, US appeals court rules

A federal appeals court ruled on Monday that New Jersey gaming regulators cannot prevent Kalshi from allowing people in the state to use its prediction market to place financial bets on the outcome of sporting events.

The ruling marked the first time a federal appeals court has ruled on what has become the central issue in an escalating battle over the ability of state gaming regulators to police the activity of prediction market operators.

“This is a big win for the industry and millions of users,” Kalshi CEO Tarek Mansour said in a social media post on X.

Kalshi and companies like it allow users to place trades and profit from predictions on events such as sports and elections. States argue that firms like Kalshi are operating without required state licenses, in violation of gaming laws, including bans on wagers by those under 21.

Those states include New Jersey, which last year sent Kalshi a cease-and-desist letter stating that its listing of sports-related event contracts on its platform violated state gambling laws that prohibit betting on collegiate sports.

Kalshi sued the state, arguing its event contracts qualify as “swaps,” a type of derivative contract, that under the Commodity Exchange Act can only be regulated by the CFTC, which had granted the company a license to operate a designated contract market (DCM).

A lower-court judge had sided with New York-based Kalshi and issued a preliminary injunction, prompting New Jersey to appeal. But a majority of the judges on the 3rd Circuit panel concluded the Commodity Exchange Act likely preempted state law.

“Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction,” U.S. Circuit Judge David Porter wrote.

“Congress gave the CFTC exclusive jurisdiction over trades on DCMs, and this decision affirms the goals of Congress,” CFTC spokesperson Brooke Nethercott said in a statement.

U.S. Circuit Judge Jane Richards Roth dissented, saying Kalshi is facilitating gambling and that its “offerings were virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel.”

New Jersey Attorney General Jennifer Davenport in a statement said her office is evaluating its options, as the ruling will allow “certain companies to offer sports gambling in our states without following the careful gaming rules that everyone else follows.”

Her office could potentially ask the full 3rd Circuit to rehear the case. The issue is also pending before several other courts, including a different federal appeals court in San Francisco that is set to hear arguments next week.

Our Standards: The Thomson Reuters Trust Principles., opens new tab