Kalshi Stays Free of New Jersey Regs With Appeals Court Win (2)

Kalshi Inc. will likely succeed in arguing that federal law bars New Jersey gaming officials from regulating its sports prediction markets, the Third Circuit said Monday, upholding a preliminary injunction against the state.

The split ruling is the first by a US circuit court to weigh in on the widespread legal battle between prediction market operators and states over whether sports-related trading on designated contract markets is subject to the exclusive jurisdiction of the federal Commodity Futures Trading Commission.

“New Jersey frames the issue broadly (regulating all sports gambling) rather than narrowly (regulating trading on federally designated contract markets),” US Court of Appeals for the Third Circuit Judge David J.Porter wrote for the majority. “The text of the Act suggests that the narrow framing is the better reading. The Act preempts state laws that directly interfere with swaps traded on DCMs. Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction.”

The three-judge panel heard oral arguments in September, questioning then what sports betting would qualify as “swaps” outside of those on a designated contract market.

The majority opinion “is more notable for the arguments that it does not carefully address” like if sports-event contracts are swaps, if there’s a financial consequence to all sports wagering, or whether all sports betting must be done on a DCM, Blank Rome LLP’s Dennis M.P. Ehling said.

“Given the extent to which other courts have looked at these questions, have delved into these other arguments, I would be surprised if the Third Circuit’s opinion is not contradicted by one or more of the other federal Circuit Courts,” Ehling said.

It raises a unique question, Ehling said: “should the CFTC, an administrative agency created by Congress, have the authority to determine whether it will preempt an entire field of state law—the thousands of pages of state gaming laws and regulations that have been developed over the years to regulate gaming (and specifically sports betting)—or instead will allow the states to continue to regulate such gaming on their own?”

The opinion lands less than two weeks before Kalshi, Robinhood Markets Inc., and Crypto.com will argue before the Ninth Circuit with support from the CFTC in their fight against Nevada. Since the installation of the CFTC’s chairman, the agency has aggressively touted that states are encroaching on its turf in attempting to regulate prediction market providers, including by suing a trio of states last week.

“I applaud the Court’s decision to uphold federal law and reject the New Jersey Division of Gaming Enforcement’s attempt to nullify it,” Chairman Mike Selig said in a social media post Monday.

The billion-dollar industry has grown exponentially, drawing players including President Donald Trump‘s social media platform and son.

Prediction markets such as Kalshi’s let users put money on a range of binary outcomes, from whether Democrats will take over the majority of the US House of Representatives to whether the University of Connecticut will top the University of Michigan in the men’s college basketball championship. Kalshi and other companies’ like offerings have sparked a nationwide legal battle over whether those entities are operating unlicensed sports betting businesses, skirting state taxes and regulation, or under the CFTC’s exclusive jurisdiction thanks to a post-2008 financial crisis update to the Commodity Exchange Act.

Congress added “swaps” to the act governing the CFTC’s jurisdiction in 2010, defining the term as any agreement that provides a purchase or sale dependent on an event “associated with a potential financial, economic, or commercial consequence.”

‘Virtually Indistinguishable’

Dissenting from the 2-1 Third Circuit majority Monday, Judge Jane R. Roth disputed the notion the sports prediction contracts fall solely within the CFTC’s ambit. “These offerings are virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel.”

The history of the congressional update indicates Congress’ general disdain for gaming contracts, Roth said. “Far from undermining congressional objectives, New Jersey’s gambling laws arguably complement them,” she said.

“I think that Judge Roth nailed it when she characterized as ‘acts of alchemy’ Kalshi’s contention that by listing what is clearly a gambling bet on a DCM it is magically transformed into not a gambling bet,” said Zuckerman Spaeder LLP’s Aitan Goelman, quoting parts of the dissent and opinion.

“And I don’t understand how the majority can avoid dealing with the implication of Kalshi’s argument, which would pre-empt all state and tribal gambling regulation, simply because Kalshi itself isn’t claiming pre-emption of gaming conducted off-DCM. It is not piling ‘inference upon inference,’ it’s a natural and inevitable consequence of Kalshi’s logic,” Goelman said.

Judge Michael A. Chagares also sat on the Third Circuit panel.

Lower Courts

States across the country say Kalshi offers glorified sports betting subject to their regulations. Lower courts have split in preliminary rulings on the issue.

New Jersey appealed after US District Judge Edward Kiel last year said Kalshi showed a likelihood of success on its argument that state gaming law is preempted by the federal act regulating commodity futures and swaps trading, and that it would suffer irreparable harm without preliminary relief.

“We profoundly disagree with today’s decision allowing certain companies to offer sports gambling in our States without following the careful gaming rules that everyone else follows,” New Jersey Attorney General Jennifer Davenport said in an emailed statement. “States like New Jersey have always had the power to oversee all gaming in their States, and to subject gaming to important safety measures, including to guard against gambling addiction and to avoid insider trading. We’ll continue standing with our colleagues fighting off similar challenges in their States, and we’re evaluating all options in our case.”

“Free markets work. We should keep them that way,” Kalshi CEO Tarek Mansour said in a social media post about Monday’s affirmance. “This is a big win for the industry and millions of users.”

Milbank LLP represents Kalshi.

The case is KalshiEX LLC v. Flaherty, 3d Cir., No. 25-01922, 4/6/26.