Sports bets on prediction markets ruled to be 'swaps,' exempt from state laws
A federal appeals court ruled that New Jersey cannot regulate sports bets on prediction markets because the US Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction.
Kalshi, which is registered with the CFTC as a designated contract market (DCM), last year won a preliminary injunction preventing the New Jersey Division of Gaming Enforcement from enforcing a state law against its sports-related event contracts. The injunction issued by a district court was upheld today in a 2-1 decision by judges at the US Court of Appeals for the 3rd Circuit.
The CFTC has exclusive jurisdiction over DCMs under the Commodity Exchange Act, a US law. The question in the Kalshi lawsuit is whether the CFTC’s exclusive jurisdiction “preempts New Jersey gambling laws and the state constitution’s prohibition on collegiate sports betting,” the appeals court majority wrote. “New Jersey frames the issue broadly (regulating all sports gambling) rather than narrowly (regulating trading on federally designated contract markets).”
Related Knowledge Center: Prediction markets
Platforms are offering a way for users trade positions — place bets — on a wide range of possible events, and newsrooms are starting to incorporate the data.
As the business rapidly grows, critics and opponents are pushing back. Numerous states have argued that the markets are gambling, and sports gambling in particular is regulated by the state. The Commodity Futures Trading Commission, now led by a Trump appointee, disagrees — as did a federal district court judge in a suit involving New Jersey.
Critics see some of the markets as, particularly in the case of military actions, indefensible, and note as well that some large, well-timed bets — “event contracts” — suggest an abuse of insider knowledge of federal actions.