Prediction markets win big! Court rules: New Jersey has “no authority to ban” Kalshi from launching sports event contracts

The U.S. Federal Court of Appeals issued a key ruling on Monday, finding that New Jersey lacks the authority to bar sports event contracts from being launched by prediction market platforms that are regulated by the Commodity Futures Trading Commission (CFTC)—a development seen as a major win for Kalshi and the broader prediction market industry. The U.S. Third Circuit Court of Appeals (Third Circuit), sitting as a three-judge panel, ruled on Monday by a 2-1 vote, stating clearly that New Jersey’s gaming regulators have no power to block the prediction market platform Kalshi from launching sports event contracts in that state. Federal oversight trumps local authorities—court calls out New Jersey The two sides’ battle began last year. At the time, governments in New Jersey and other states banned Kalshi from offering sports event contracts, citing “violations of local gambling regulations.” Unwilling to back down, Kalshi immediately sued the state government, arguing that the platform is a federally regulated commodity exchange and falls under a “Designated Contract Market (DCM),” and that the authority of the Commodity Exchange Act should take precedence over state law, meaning the state government has no right to interfere. During the course of the lawsuit, New Jersey tried to closely adhere to the so-called reservation clauses in the statute, insisting that the state government retains jurisdiction over these types of contracts. However, in its opinion, the judge rejected the above claims:

The statute is very clear: federal law has explicitly granted CFTC exclusive jurisdiction over swaps.

CFTC throws its weight behind prediction markets In fact, as a federal regulator, the CFTC has long been a strong backer of prediction markets. To defend “exclusive jurisdiction,” last week the CFTC even took major action by suing the governments of Arizona, Illinois, and Connecticut, alleging that they were trying to illegally shut down federally regulated DCM platforms. The appeals court also agreed with the CFTC’s position. The opinion states: “Congress has fully delegated jurisdiction over trading on DCM platforms to the CFTC, while also preserving state governments’ authority to regulate trading ‘outside’ DCM platforms. Even if these event contracts have a gambling flavor, the discretion to review or prohibit them ultimately remains with the CFTC.” However, the judge who cast the dissenting vote believed that Kalshi is “hiding in plain sight” and “playing games,” intending to obscure the fact that the essence of its products is sports gambling. The judge emphasized: “If Kalshi is facilitating gambling conduct, then it should naturally be subject to regulation by the state government.” After receiving the favorable ruling, Kalshi CEO Tarek Mansour immediately took to the social platform X to proclaim that this is a “major victory.” He said:

The reason people are so enthusiastic about prediction markets is that they’re fairer, more transparent, and can deliver real returns to those who get the direction right. Free market mechanisms work—we should keep them that way.

Wall Street’s take: a temporary win, but the Supreme Court will ultimately decide However, Jaret Seiberg, managing director at TD Cowen’s Washington research group, noted that for Kalshi, this ruling is at best a “temporary victory.” Who ultimately has jurisdiction over sports event contracts still must be decided by the Supreme Court, and the process could take years. Jaret Seiberg said: “We think that for this dispute to truly land on the Supreme Court justices’ desks, we probably still have to wait another year.”

As we said earlier, we still lean more toward the view that state governments will prevail—after all, judging from historical context, the gambling industry has always been regulated by state governments themselves. We believe this will have a key impact on the majority of the Supreme Court justices.

Will prediction markets be stepping over a red line? Washington state sues Kalshi for violating gambling laws—regulatory clashes between the U.S. states and Washington heat up