An appeals court ruled Monday that New Jersey could not temporarily ban prediction market provider Kalshi, giving the platform a much-needed victory against an onslaught of state enforcement actions.
A third appeals court panel ruled by a 2-1 vote that the state could not bring an enforcement action against Kalshi because the company’s products are governed by the federal Commodity Exchange Act, rather than New Jersey state gaming laws.
“Kalshi began offering sports-related event contracts on its DCM exchange,” the majority ruling said. “Kalshi self-certified compliance with the applicable laws and regulations, so these event contracts were presumptively approved under federal law. . . . To date, the CFTC has not determined that Kalshi’s sports-related event contracts are contrary to the public interest.”
The CFTC has not initiated 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 “swaps” covered by the Act because the outcome of a sports game is not ‘connected or linked’ to a financial, economic or commercial instrument or measure,” the ruling added. “However, its proposed “joined or connected” requirement raises the bar beyond what [Commodity Exchange] Law requires.”
Circuit Judge Jane Roth, writing a dissent, said the New Jersey state rules do not “undermine the goals of Congress” under the Commodity Exchange Act and that the actual products available on Kalshi’s platform “are sports gambling,” pointing to contracts betting on the winner of a National Football League game, the point spread in that game and the combined number of points scored as examples.
States across the United States have begun filing lawsuits or issuing cease-and-desist orders to predictive market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws. The CFTC has argued that prediction markets or event contracts are swaps subject to the Commodity Exchange Act, which preempts those state regulations.
Different courts have issued divergent rulings. Some state courts have entered initial temporary restraining orders or preliminary injunctions in the states’ favor, while federal district courts have been more mixed.
Courts of appeal have also been mixed. While the Third Circuit’s ruling on Monday suggests that prediction market providers will prevail on their argument that the Commodity Exchange Act preempts those state regulations, the Ninth Circuit declined to block another state enforcement action by Nevada last month, paving the way for that state to secure a temporary injunction and preliminary injunction against Kalshi. There will be another Ninth Circuit hearing later this month with a number of companies.
Speaking Monday at an event hosted by Vanderbilt University and the Blockchain Association, CFTC Chairman Michael Selig said it was important that the federal regulator defend its “exclusive jurisdiction over these markets.” The CFTC filed an amicus curiae brief with the Ninth Circuit ahead of next week’s hearing.
“Our definition of commodity and statute is very broad. It includes events about sports, it includes events about politics, it includes corn and grain and all sorts of things,” he said. “It doesn’t really distinguish between whether you offer an event contract on grain, [that] you regulate it differently than an event contract on sports.”
