Nate Raymond

New Jersey can’t regulate Kalshi’s prediction market, US appeals court rules

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  • The CFTC has exclusive jurisdiction over Kalshi sports event contracts, the court rules
  • The ruling marks the first federal appeals decision regarding state vs. federal regulation of prediction markets
  • The dissenting judge said that Kalshi’s offerings were similar to conventional gambling

April 6 (Reuters) – A state appeals court ruled on Monday that New Jersey sports regulators cannot prevent Kalshi from allowing state players to use its prediction market to place financial bets on the outcome of sporting events.

A three-judge panel of the 3rd United States Circuit Court of Appeals ruled 2-1.opens a new tab by finding that the US Commodity Futures Trading Commission has exclusive jurisdiction over the sports-related event contracts that Kalshi allows people to trade on its platform.

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The ruling marks the first time a federal appeals court has ruled on what has become a central issue in the escalating battle over the ability of state gaming regulators to police the work of market traders.

“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 similar companies allow users to place trades and profit from predictions on events such as sports and elections. States argue that firms like Kalshi operate without the required state license, in violation of gaming laws, including restrictions on betting by under-21s.

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

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

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

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

The ruling was consistent with progress in other CFTC cases under the administration of President Donald Trump. Last week, the regulator sued Arizona, Connecticut and Illinois to stop them from pursuing what they called illegal attempts to regulate the futures markets.

“Congress gave the CFTC the authority to regulate trading in DCMs, and this decision affirms Congress’s intentions,” CFTC spokeswoman Brooke Nethercott said in a statement.

US Circuit Judge Jane Richards Roth refused, saying Kalshi operated a gambling game and that “its offerings were virtually indistinguishable from betting products found at online sportsbooks, such as DraftKings and FanDuel.”

New Jersey Attorney General Jennifer Davenport said her office is reviewing its options, as the decision will allow “some companies to offer gambling in our states without following the strict rules of the game that everyone follows.”

His office may request a full 3rd Circuit to hear the case again. The matter is pending before several other courts, including a separate federal appeals court in San Francisco that is scheduled to hear arguments next week.

A Nevada judge on Friday said he would issue an injunction barring Kalshi from offering event-based contracts that violate state gaming law, and a Massachusetts judge issued a similar ruling that is pending appeal.

Reporting by Nate Raymond in Boston; additional reporting by Chris Prentice; Edited by Andrea Ricci, Alexia Garamfalvi, Bill Berkrot and Aurora Ellis

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