Federal Appeals Court Blocks New Jersey From Regulating Kalshi’s Prediction Market

Kalshi users in New Jersey can keep trading on the platform, at least for now. A federal appeals court ruled the state can’t enforce its gambling laws against the prediction market, handing a major victory to Kalshi and shaking up the sports betting landscape.

Kalshi’s Fight to Stay Open in New Jersey

Last year, New Jersey sent Kalshi a cease-and-desist letter, claiming the company’s sports event contracts violated state gambling laws — especially those banning bets on college sports. Kalshi fired back, arguing its contracts fall under the Commodity Exchange Act as "swaps," a type of derivative regulated exclusively by the Commodity Futures Trading Commission (CFTC). The company pointed to its CFTC license to operate a designated contract market (DCM) as proof it was following federal rules.

At first, a lower court sided with Kalshi and issued a preliminary injunction blocking New Jersey from enforcing its gambling laws against the platform. But the state pushed back, appealing the decision. The Third Circuit Court of Appeals in Philadelphia just upheld the lower court’s ruling in a 2-1 decision, making it clear that the CFTC has exclusive authority over Kalshi’s sports-related contracts.

Judge David Porter wrote for the majority, saying, "Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction." He went on to explain that allowing New Jersey to enforce its gambling laws here would interfere with federal law, undermining the very purpose of the Commodity Exchange Act. This ruling stops New Jersey from regulating Kalshi’s business in the state.

Kalshi CEO Tarek Mansour celebrated the victory on social media, calling it "a big win for the industry and millions of users." The decision comes amid growing tensions between state gaming regulators and the federal government over who gets to police prediction markets.

What Exactly Is Kalshi—and Why Is It Controversial?

Kalshi operates a platform where users can trade contracts based on the outcomes of various events, including sports games and elections. People buy and sell contracts predicting these outcomes, essentially turning predictions into financial products.

States like New Jersey see this as gambling, arguing it should be regulated under their gaming laws, which include age restrictions and other protections. Kalshi argues that it isn’t traditional gambling but rather a financial market regulated by the CFTC.

The company claims its contracts qualify as "swaps," financial derivatives that fall under federal jurisdiction.

The main issue is whether these contracts are financial instruments or bets. If courts side with Kalshi, it limits states’ power to regulate such platforms, potentially opening the door for more widespread use of prediction markets that operate under federal oversight.

Dissenting Opinion and State Concerns

Not everyone agreed with the majority. Circuit Judge Jane Richards Roth dissented, warning that Kalshi’s contracts are "virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel." She argued Kalshi is facilitating gambling and that its products should be subject to state gaming laws.

New Jersey Attorney General Jennifer Davenport said her office is reviewing the decision and considering next steps. She expressed concern that the ruling allows companies like Kalshi to offer sports gambling without following "the careful gaming rules that everyone else follows." That includes protections against underage gambling and other safeguards.

Kalshi’s business model blurs the line between financial regulation and gambling oversight. States want to protect consumers and enforce their laws, but the federal ruling limits their reach when it comes to certain types of event contracts.

Broader Implications for Prediction Markets and Regulation

The ruling follows a series of legal battles over who gets to regulate prediction markets. The CFTC, under Chair Michael Selig, has made clear it claims exclusive jurisdiction over event contracts traded on licensed DCMs like Kalshi. The agency recently sued states including Arizona, Connecticut, and Illinois to stop them from regulating these markets, arguing such efforts are unlawful.

Kalshi’s case is the first federal appeals court decision tackling this issue head-on. This ruling could set a precedent that limits states’ ability to police emerging markets that blend elements of gambling and finance.

At the same time, other courts have taken different approaches. For example, a Nevada judge recently extended a ban on Kalshi offering event-based contracts in that state, showing a patchwork of rulings across the country. That patchwork could push these cases toward the Supreme Court, which has already weighed in on sports betting with its 2018 decision striking down the federal ban on state-regulated sports gambling.

Legal experts warn the question of whether sports event contracts are swaps "is a thorny issue with the potential to radically upend the legal landscape governing the gambling industry," as Judge Roth put it. This decision might change how states regulate betting and financial derivatives, causing uncertainty for both operators and regulators.

CFTC’s Position and Future Outlook

Michael Selig, the CFTC Chair, has focused heavily on clarifying the agency’s role in regulating prediction markets. He contends the CFTC alone has authority over these contracts, which are financial instruments, not bets.

The commission recently proposed new rules and opened them for public comment, signaling its intent to strengthen federal oversight. It's also actively defending its jurisdiction in court, emphasizing that Congress granted it exclusive authority over designated contract markets to avoid a patchwork of conflicting state regulations.

That stance has big implications. If the CFTC’s view prevails, companies like Kalshi could operate nationwide without needing state gaming licenses. On the flip side, states risk losing control over gambling activities within their borders, raising questions about consumer protection and regulatory fairness.

Right now, Kalshi and similar platforms sit at the crossroads of finance and gambling law, with regulators and courts still hashing out the rules. The appeals court’s ruling is a major development, but the final answer may come only after more court battles, possibly reaching the Supreme Court.

For now, Kalshi can keep offering its prediction markets in New Jersey, but the fight over who controls these platforms is far from over. The legal tug-of-war between states and the federal government will shape the future of sports betting and financial derivatives for years to come.