TLDR
- The Third Circuit Court of Appeals determined in a 2-1 decision that New Jersey lacks authority to enforce state gaming regulations against Kalshi’s prediction market platform
- Federal Commodity Exchange Act provisions supersede state-level gambling restrictions for event-based contracts on Kalshi’s platform
- The Commodity Futures Trading Commission asserts sole regulatory authority over prediction markets, classifying event contracts as swaps under federal law
- Federal circuit courts are delivering contradictory decisions, with the Third Circuit supporting Kalshi while the Ninth Circuit has backed Nevada’s position
- Arizona, Connecticut, and Illinois face CFTC lawsuits challenging their regulatory actions against prediction market operators
A US appeals court has prevented New Jersey state regulators from enforcing gaming laws against Kalshi’s sports-related prediction markets, determining that federal commodity regulations supersede state authority.
The Third Circuit Court of Appeals issued a 2-1 ruling Monday supporting Kalshi’s position that state gaming regulators exceeded their jurisdiction in attempting enforcement actions against the prediction market operator.
The appellate panel concluded that event contracts offered through Kalshi fall under federal Commodity Exchange Act jurisdiction, placing them beyond the reach of state gambling enforcement mechanisms.
“Kalshi self-certified compliance with the applicable laws and regulations, so those event contracts were presumptively approved under federal law,” the majority ruling said.
The decision emphasized that the CFTC has neither declared Kalshi’s sports-related contracts contrary to public welfare nor initiated any regulatory enforcement proceedings against the platform.
Tarek Mansour, Kalshi’s chief executive, described the decision as “a big win for the industry and millions of users” in a social media statement.
In her dissenting opinion, Circuit Judge Jane Roth argued that Kalshi’s offerings “are sports gambling” and bear no meaningful distinction from products available through traditional betting platforms. She cited contracts involving NFL game outcomes, point-spread betting, and score totals as evidence.
A Patchwork of Conflicting Court Rulings
Prediction market platforms including Kalshi and Polymarket face legal challenges from multiple state governments through lawsuits and cease-and-desist directives, with states contending these operations breach gaming statutes.
Judicial outcomes have varied significantly. While Monday’s Third Circuit determination favored Kalshi, the Ninth Circuit rejected the company’s request last month to prevent Nevada from obtaining a restraining order.
A Nevada court judge also prolonged restrictions on Kalshi’s operations shortly before the Third Circuit issued its ruling. Additional Ninth Circuit proceedings involving several prediction market companies are set for later this month.
CFTC Pushes Back Against State Regulators
Commodity Futures Trading Commission Chair Michael Selig has prioritized prediction market oversight since assuming leadership, maintaining that the federal agency possesses “exclusive jurisdiction” over event-based contracts.
The CFTC initiated legal action last week against Arizona, Connecticut, and Illinois, challenging what the agency characterizes as unauthorized state-level regulatory intervention in prediction market operations.
During remarks at Vanderbilt University on Monday, Selig explained that the commission interprets commodity definitions expansively to encompass sports outcomes, political events, and conventional commodities like agricultural products.
The CFTC has also submitted a supporting brief in the Ninth Circuit proceedings scheduled for next week.
The jurisdictional dispute between federal and state authorities over prediction market regulation continues, with numerous legal proceedings advancing through various court systems concurrently.
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