The Third Circuit Court of Appeals has ruled 2-1 that the state of New Jersey cannot enforce its ban on Kalshi’s sports-related event contracts. This significant decision means that the contracts fall under the jurisdiction of the federal Commodity Exchange Act, rather than state gambling regulations. As a result, Kalshi can continue offering its prediction market products without state interference. This ruling is particularly vital to the operation of Kalshi’s platform, as sports-related event contracts are a key component of its exchange offerings.
The Third Circuit Court of Appeals ruled 2-1 that New Jersey could not bring an enforcement action against Kalshi because Kalshi’s sports-related event contracts are subject to the federal Commodity Exchange Act rather than New Jersey state gambling laws. The panel concluded that Kalshi’s registration as a Designated Contract Market (DCM) and the branding of its offerings as sports-event contracts result in those products being treated as futures trading under federal law and regulated by the Commodity Futures Trading Commission rather than by state gambling regulators. The court noted that Kalshi began offering sports-related event contracts on its DCM exchange and that the CFTC has not commenced any enforcement actions against those specific contracts.
The dissenting judge, Jane R. Roth, disagreed with the majority and argued that Kalshi’s platform in practice sells sports gambling. The majority opinion suggested that prediction market providers will prevail on the argument that the Commodity Exchange Act preempts state rules regarding such event contracts. The panel’s ruling thus portrays Kalshi’s sports-related event contracts as falling within federal regulation under the Commodity Exchange Act rather than subject to New Jersey’s state gambling ban.
States across the United States have initiated legal challenges and issued cease-and-desist orders targeting prediction market providers, including Kalshi and rival Polymarket. The record shows multiple state enforcement efforts against such platforms and that Kalshi began offering sports-related event contracts on its DCM exchange. The Commodity Futures Trading Commission has not commenced enforcement actions against Kalshi’s sports-related event contracts. The Third Circuit’s decision indicated that federal law may displace state gambling rules for these products.
The Ninth Circuit recently declined to block a separate state enforcement action from Nevada, a decision that cleared the way for Nevada to obtain a temporary restraining order and a preliminary injunction against Kalshi. There is a scheduled Ninth Circuit hearing later this month that will involve a number of companies in similar disputes. The broader litigation landscape therefore includes both ongoing state actions and appellate proceedings in multiple federal circuits. These developments coexist with the absence so far of direct CFTC enforcement against Kalshi’s specific sports-related event contracts.
These items outline the current legal and regulatory context for Kalshi and comparable prediction market providers. The Third Circuit’s ruling suggested that the Commodity Exchange Act may preempt state rules governing such event contracts.
Kalshi co-founder and CEO Tarek Mansour emphasized that prediction markets are fair, transparent, and reward participants who are correct, and he described the Third Circuit ruling as a big win for the industry and millions of users. The legal record notes that the case could be appealed to the U.S. Supreme Court or be subject to en banc review by the Third Circuit. The broader public record also indicates that the Trump administration has backed prediction markets through lawsuits in Illinois, Arizona and Connecticut.
The Third Circuit’s determination that Kalshi’s sports-related event contracts are governed by the federal Commodity Exchange Act frames those products as falling under federal regulation rather than state gambling laws. That outcome carries implications for Kalshi’s sports-related event contracts and for other prediction market providers across the industry.
