An appeals court ruled Monday that New Jersey cannot temporarily ban prediction market provider Kalshi, giving the platform a well-deserved victory against a wave of state enforcement actions.
A panel of the Third Circuit Court of Appeals ruled 2-1 that the state could not take enforcement action against Kalshi because the company’s products are subject to the federal Commodity Exchange Act, rather than New Jersey’s state gaming laws.
“Kalshi began offering sports-related event contracts on its DCM exchange,” the majority decision said. “Kalshi self-certified its compliance with applicable laws and regulations, such that these event contracts were presumed approved under federal law…To date, the CFTC has not determined that Kalshi’s sporting event contracts were contrary to the public interest.”
The CFTC has not taken any enforcement action against “sports-related event contracts,” said the ruling, signed by Chief Judge Michael Chagares and Circuit Judge David Porter.
“New Jersey argues that Kalshi’s event contracts are not ‘exchanges’ covered by the statute because the outcome of a sporting match is not ‘joined or connected’ with any financial, economic, or commercial instrument or measure,” the ruling adds. “But the proposed ‘joined or connected’ requirement sets the bar beyond what the [Commodity Exchange] The act demands.”
Circuit Judge Jane Roth, who wrote a dissenting opinion, said New Jersey’s rules did not “detract from Congress’s purposes” under the Commodity Exchange Act, and that the products available on Kalshi’s platform “are sports betting,” citing as examples contracts betting on the winner of a National Football League game, the point spread in that game and the combined number of points scored.
States across the United States have begun filing lawsuits or issuing cease and desist orders against prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws. The CFTC argued that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts these state rules.
Different courts have issued divergent decisions. Some state courts have filed initial temporary restraining orders or preliminary injunctions in favor of states, while federal district courts have been more mixed.
Appeals courts have also been mixed. While the Third Circuit’s decision Monday suggests that prediction market providers will prevail on their argument that the Commodity Exchange Act preempts these state rules, the Ninth Circuit declined to block another Nevada state enforcement action last month, clearing the way for that state to obtain a temporary restraining order and preliminary injunction against Kalshi. There will be another Ninth Circuit hearing later this month with a number of companies.
CFTC Chairman Michael Selig, speaking Monday at an event hosted by Vanderbilt University and the Blockchain Association, said it was important for the federal regulator to defend its “exclusive jurisdiction over these markets.” The CFTC filed an amicus brief with the Ninth Circuit ahead of next week’s hearing.
“Our definition of products and laws is very broad. It includes sporting events, political events, corn and grain and all kinds of things,” he said. “It doesn’t really differentiate between if you offer a cereal event deal, [that] you settle this differently from a sports event contract.
