In a recent decision by the Third Circuit Court of Appeals, New Jersey was barred from temporarily prohibiting prediction market operator Kalshi. The ruling marks a significant victory for Kalshi amid ongoing state enforcement attempts.
The panel reached its verdict with a 2-1 vote, determining that Kalshi’s offerings fall under federal jurisdiction via the Commodity Exchange Act rather than being subject to New Jersey gambling regulations. According to the majority opinion, Kalshi had self-certified compliance with relevant laws, rendering its sports-related event contracts federally approved. The Commodity Futures Trading Commission (CFTC) has yet to take any enforcement action against these contracts.
Chief Judge Michael Chagares and Circuit Judge David Porter, who authored the ruling, noted that New Jersey’s argument—that Kalshi’s offerings do not qualify as ‘swaps’ under the Act due to their lack of connection with financial or economic instruments—sets an unreasonably high threshold beyond what is required by law.
In dissent, Circuit Judge Jane Roth argued that state regulations did not conflict with the federal objectives established by the Commodity Exchange Act. She emphasized that Kalshi’s offerings are essentially sports bets, citing contracts related to NFL game outcomes as evidence.
Across the U.S., states have increasingly targeted prediction market providers like Kalshi and Polymarket through lawsuits or cease-and-desist orders for allegedly breaching state gambling laws. The CFTC maintains these markets fall under the Commodity Exchange Act’s purview, which supersedes state legislation.
Judicial responses to such cases vary considerably. Some state courts have issued temporary restraining orders or preliminary injunctions favoring states, while federal district court rulings are more inconsistent. Appeals courts show a similar split in decisions; although the Third Circuit’s recent ruling supports prediction market providers’ claims of preemption by federal law, the Ninth Circuit recently allowed Nevada to obtain a temporary restraining order and preliminary injunction against Kalshi.
The Ninth Circuit is set for another hearing involving multiple companies later this month. CFTC Chairman Michael Seling highlighted the importance of defending federal jurisdiction over these markets at an event hosted by Vanderbilt University and the Blockchain Association, where he discussed the broad scope of the Commodity Exchange Act in covering diverse events from sports to politics.
The CFTC has submitted an amicus curiae brief to the Ninth Circuit ahead of this upcoming hearing.