A US appellate court ruled against New Jersey gaming authorities in an enforcement action targeting prediction market platform Kalshi’s sports-event contracts.
In a Monday opinion, a Third Circuit panel held 2-1 that Kalshi had a “reasonable chance of success” in arguing the Commodity Exchange Act preempts state law, reinforcing a lower court’s decision and potentially setting up a Supreme Court review of state gambling authority over such markets.
“This is a big win for the industry and millions of users,” Kalshi CEO Tarek Mansour said on X.
Kalshi contended that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over sports-related event contracts classified as swaps. Circuit Judge David J. Porter wrote that New Jersey enforcement would “create an obstacle to executing the Act” by preventing Kalshi—operating a CFTC-licensed designated contract market—from offering these contracts in the state, calling state regulation the “patchwork that Congress replaced wholecloth by creating the CFTC.”
The ruling follows a Nevada judge’s recent extension of a ban on Kalshi offering event-based contracts and comes amid multiple state crackdowns on prediction-market sports betting. The resulting state-by-state decisions increase the likelihood of the US Supreme Court resolving the broader question, possibly revisiting a 2018 decision that affirmed states’ authority to regulate sports gambling.
In dissent, Circuit Judge Jane Roth argued Kalshi’s products are effectively sports gambling and criticized the majority for insufficiently grappling with whether sports-event contracts qualify as swaps: “[T]he question of whether sports-event contracts are swaps is a thorny issue with the potential to radically upend the legal landscape governing the gambling industry, and I am not convinced the Majority’s analysis does this issue justice.” Roth described the platform’s contracts as “virtually indistinguishable” from betting-site offerings.
CFTC Chair Michael Selig, who has prioritized prediction markets since becoming the agency’s sole commissioner, has asserted the commission’s exclusive jurisdiction over event contracts. In recent months he opened a proposed rule to public comment, filed an amicus brief in a Ninth Circuit case involving Nevada gaming authorities, and said the CFTC recently sued Arizona, Connecticut and Illinois to block what it called unlawful state regulation of prediction markets.
Selig told a policy summit at Vanderbilt University that the agency’s definition of commodities and covered statutes is broad: “It includes events on sports, it includes events in politics, it includes corn and grains and all sorts of things. It doesn’t really distinguish between if you’re offering an event contract on grains, you’re regulating that differently than an event contract on sports.” He added there are exceptions for event contracts that are “readily susceptible to manipulation.”
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