News: Kalshi Wins Appeal Vs. New Jersey In Biggest Prediction Market Decision Yet
Kalshi won its appeal against New Jersey in the Third Circuit, the biggest decision to date on the legality of prediction markets and whether federal law preempts state gaming law.
New Jersey issued a cease-and-desist letter to Kalshi in March of last year. In return, Kalshi sued the state, asking a federal court to stop the state from enforcing its gaming laws against prediction markets. Kalshi and other prediction markets assert that they are regulated under the Commodity Futures Trading Commission, and state laws don’t apply.
Kalshi had won this case in district court, although it has suffered defeats in district courts in other circuits.
Two of the three judges in the Third Circuit ruled in favor of Kalshi in the case.
From the majority opinion:
Kalshi has met its burden for preliminary injunctive relief. The parties contest whether the CFTC’s exclusive jurisdiction over DCMs as conferred by the Act preempts New Jersey gambling laws and the state constitution’s prohibition on collegiate sports betting. New Jersey frames the issue broadly (regulating all sports gambling) rather than narrowly (regulating trading on federally designated contract markets). 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 District Court did not abuse its discretion by finding that Kalshi would more likely than not suffer irreparable harm absent the preliminary injunction and that the remaining preliminary injunction factors also weigh in favor of Kalshi. …
Congress gave the CFTC exclusive jurisdiction over trades on DCMs, provided for continued state regulation of trades conducted off DCMs, and recognized that while event contracts could involve gaming, the CFTC has discretionary power to review and prohibit those contracts. Thus, it was reasonable for the District Court to conclude that Kalshi was likely to succeed in showing that the Act preempts New Jersey law from reaching into Kalshi’s CFTC-licensed DCM to ban sports-related event contracts.
Full decision here:
From the dissenting opinion:
When I went on the Kalshi page for the Carolina Panthers vs. Tampa Bay Buccaneers football game scheduled for January 3, 2026, I could have bet on the winner (game outcome). I could have also bet on whether I believed Tampa Bay would win by more than 2.5 points (point spread), whether the two teams would collectively score 45 or more points (game props), or whether former Tampa Bay wide receiver Mike Evans would score a touchdown (player props). These offerings are virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel. While online sportsbooks are regulated by states such as New Jersey, Kalshi asserts that it is outside the bounds of state regulation because it does not offer gambling products. Instead, Kalshi contends its offered sports-event contracts are swaps, subject to the exclusive jurisdiction of the CFTC. The Majority agrees, holding that Kalshi’s registration as a DCM and branding of its wagers as sports-event contracts are acts of alchemy that transmute its products from sports gambling to futures trading. I see Kalshi’s actions as a performative sleight meant to obscure the reality that Kalshi’s products are sports gambling. Because Kalshi is facilitating gambling, it can be subjected to state regulation.
New Jersey could ask for an en banc rehearing in the Third Circuit, where all the judges in the circuit would listen to the case. It could also appeal to the US Supreme Court.
Meanwhile, there are a host of other cases in both federal and state courts about the legality of prediction markets.
SCOTUS is inevitable.
To point out an obvious difference between sports-style betting and prediction trading: you can't sell sports bets early for their current value. There's no backing out or claiming premature victory, both of which are possible with contract trading, and alter the risk profile considerably.
The circuit split is the real story here. Three weeks before this Third Circuit win, an Ohio federal judge denied Kalshi the same injunction, and a Nevada judge ruled explicitly that CFTC registration does *not* preempt state gaming law — sending both Kalshi and Polymarket cases to state courts. So now you have the Third Circuit saying federal preemption applies while district courts in other circuits say the opposite. That's the textbook setup for a Supreme Court cert petition. Kalshi may have won the battle, but the war is now almost certainly heading to SCOTUS — which is either the best or worst thing that could happen to prediction markets, depending on how much you trust nine justices to understand what a swap is.