Quick Summary
- The Third Circuit Court of Appeals delivered a 2-1 decision preventing New Jersey from applying gambling regulations to Kalshi’s platform
- Federal judges determined the Commodity Exchange Act takes precedence over state-level gambling statutes for sports-event prediction contracts
- The CFTC asserts sole regulatory authority over prediction markets, classifying event contracts under its swap jurisdiction
- Contradictory court decisions are emerging nationwide, with the Third Circuit backing Kalshi while the Ninth Circuit supports Nevada’s position
- The CFTC recently initiated legal action against Arizona, Connecticut, and Illinois over their prediction market regulatory efforts
A federal appellate tribunal has prevented New Jersey from closing down Kalshi’s sports-betting prediction platform, determining that federal regulations supersede state gambling statutes.
On Monday, the Third Circuit US Court of Appeals issued a 2-1 verdict supporting Kalshi, the prediction market operator. The tribunal concluded that New Jersey’s gaming regulators lacked authority to pursue enforcement measures against the platform.
The judicial panel determined that Kalshi’s contracts based on sporting events fall under federal Commodity Exchange Act protections. Consequently, state gambling regulations cannot be enforced against these instruments.
“Through self-certification of compliance with relevant statutes and regulations, those event contracts received presumptive federal approval,” the majority opinion stated.
The tribunal further observed that the CFTC has neither determined Kalshi’s sports-related contracts violate public interest standards nor initiated any enforcement proceedings against the company.
Kalshi’s chief executive, Tarek Mansour, characterized the decision as “a big win for the industry and millions of users” through a statement on X.
Circuit Judge Jane Roth issued a dissenting opinion, arguing that Kalshi’s offerings “are sports gambling” and remain “virtually indistinguishable” from products available on traditional betting platforms. She cited contracts involving NFL game outcomes, point spreads, and aggregate scores as supporting evidence.
Conflicting Judicial Interpretations Create Legal Uncertainty
Multiple states have launched legal challenges and issued cease-and-desist directives against prediction market operators, including Kalshi and Polymarket. State authorities contend these platforms breach local gambling statutes.
Judicial outcomes have varied significantly. While Monday’s Third Circuit ruling benefits Kalshi, the Ninth Circuit refused last month to prevent Nevada from obtaining a restraining order against the identical company.
A Nevada district judge also prolonged Kalshi’s operational ban mere days before the Third Circuit’s decision. The Ninth Circuit has scheduled a comprehensive hearing involving several companies for later this month.
Federal Regulator Challenges State Authority
Since assuming leadership, CFTC Chair Michael Selig has prioritized prediction markets as a key policy area. He maintains the CFTC possesses “exclusive jurisdiction” over event-based contracts.
The previous week saw the CFTC file lawsuits against Arizona, Connecticut, and Illinois to prevent what the agency characterized as unauthorized state regulation of prediction markets.
During remarks at Vanderbilt University on Monday, Selig explained that the agency’s commodity definition encompasses a wide scope, treating sports events, political outcomes, and conventional commodities like corn and grains with equal regulatory standing.
The CFTC has also submitted an amicus brief advancing its jurisdictional position in the Ninth Circuit before next week’s scheduled hearing.
The jurisdictional dispute between state and federal authorities over prediction market regulation continues to escalate, with numerous cases proceeding through various court systems concurrently.
