TLDR
- A 2-1 decision from the US Third Circuit Court of Appeals favored Kalshi, preventing New Jersey from applying state gambling regulations to the prediction market company
- In her dissent, Judge Roth contended that Congress didn’t intend for the CFTC to supersede state gambling authority when it revised the Commodity Exchange Act in 2010
- Observers are divided on whether this decision could jeopardize state-controlled gambling industries nationwide
- The decision represents a preliminary injunction based on a “reasonable likelihood of success” rather than a final judgment
- Analysts anticipate the dispute will ultimately reach the Supreme Court, with New Jersey having a two-week window to pursue an en banc review
In a significant development for the prediction market industry, a federal appeals court has delivered a favorable ruling for Kalshi in its contentious legal dispute concerning the intersection of federal oversight and state gambling regulations.
The US Third Circuit Court of Appeals issued a 2-1 decision maintaining a preliminary injunction that prevents New Jersey from applying its gambling statutes to Kalshi’s operations.
This represents a substantial legal victory for the platform as it continues battling state regulatory authorities.
Dissenting Opinion Questions Federal Authority Over State Gaming Rights
The decision wasn’t without controversy. Judge Jane Richards Roth filed a vigorous dissent, contending that Congress never authorized the Commodity Futures Trading Commission to override state authority in gambling regulation.
Roth referenced congressional testimony between senators Dianne Feinstein and Blanche Lincoln, highlighting Lincoln’s statement that Congress anticipated the CFTC would prohibit contracts deemed “contrary to the public interest” and designed primarily for gambling purposes.
Lincoln explicitly cited contracts related to the Super Bowl, Kentucky Derby, and Masters Golf Tournament as examples of agreements that “would not serve any real commercial purpose.”
Roth further contended that Kalshi’s expansive interpretation of swaps could encompass “virtually every kind of wager,” extending even to a neighborhood ping pong game bet. Such a sweeping result couldn’t have been Congress’s intention, she argued.
The dissenting judge highlighted Kalshi’s Instagram activity, which she noted “routinely refer to its products as sports betting.” She concluded that “basic abductive reasoning” indicates the platform’s offerings constitute gambling.
This dissenting opinion triggered immediate responses from industry stakeholders. Sporttrade founder Alex Kane challenged the assessment on X, maintaining that state-licensed sportsbooks and federally supervised exchanges can operate simultaneously.
Kane emphasized that the CFTC has never pursued enforcement actions against state-licensed sportsbooks, suggesting the agency isn’t attempting to commandeer state gambling oversight.
Industry Watchers Caution Against Premature Conclusions
Responsible gambling advocate Jessica Welman offered a contrasting perspective, revealing that several legal scholars she consulted believe state-regulated gambling’s demise is “a very real possibility” based on this case’s trajectory.
Gaming industry analyst Steve Ruddock observed that the CFTC isn’t seeking jurisdiction over state sportsbooks “yet,” pointing out that critics often omit that qualifier from their arguments.
Kane suggested that federal oversight might prove superior to what he characterized as states’ “incredibly anti-consumer and anti-innovation regulatory regime.”
Legal professionals have emphasized the preliminary nature of this ruling. Holland and Knight Law highlighted that the court merely identified a “reasonable likelihood of success” for Kalshi, falling short of a definitive judgment.
Gaming attorney Daniel Wallach noted on X that New Jersey has a 14-day period to pursue an en banc hearing before the complete Third Circuit. Though such requests are infrequently approved, the divided decision might improve the state’s prospects.
In his April 7 newsletter, Ruddock characterized the ruling as “not a destination” but rather “just another stop on the way to the Supreme Court.”
He cautioned against overinterpreting individual rulings, noting that New Jersey held a 14-2 victory record before this setback and drawing parallels to the state’s protracted sports betting litigation, where it suffered losses in every lower court before ultimately prevailing at the Supreme Court.
New Jersey faces a late April deadline to determine whether to pursue en banc review of the Third Circuit’s split decision.
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