A federal appeals panel ruled in favor of prediction market platform Kalshi, finding that it has a strong chance of showing federal law preempts New Jersey’s bid to bar certain sports-event contracts.
In a 2-1 decision, a Third Circuit panel said Kalshi demonstrated a “reasonable chance of success” on its argument that the Commodity Exchange Act (CEA) — and the Commodity Futures Trading Commission’s (CFTC) authority under it — displaces state law in this area. The opinion upholds a lower court’s ruling and raises the prospect that the U.S. Supreme Court may ultimately resolve whether states can regulate these markets.
Kalshi CEO Tarek Mansour called the ruling “a big win for the industry and millions of users.” Kalshi maintains that the CFTC has exclusive jurisdiction over sports-related event contracts that meet the definition of swaps and that, as a CFTC-licensed designated contract market, it should be permitted to offer those contracts nationwide, including in New Jersey.
Writing for the majority, Circuit Judge David J. Porter said a state enforcement action would “create an obstacle to executing the Act” by preventing Kalshi from providing contracts that Congress assigned to the CFTC to regulate, and described state regulation as the “patchwork that Congress replaced wholecloth by creating the CFTC.”
The decision comes amid a flurry of state efforts to restrict or ban prediction-market sports contracts. A Nevada judge recently extended a ban on Kalshi’s event-based contracts, and several states have pursued enforcement or new rules aimed at prediction markets. That state-by-state legal patchwork increases the likelihood the Supreme Court will be asked to revisit how far states’ powers reach over betting-like products — potentially testing or narrowing a 2018 precedent that affirmed broad state authority over sports gambling.
In dissent, Circuit Judge Jane Roth argued that Kalshi’s offerings are effectively sports gambling and accused the majority of failing to adequately analyze whether those contracts qualify as swaps. Roth warned the issue is “thorny” and could “radically upend the legal landscape governing the gambling industry,” calling Kalshi’s contracts “virtually indistinguishable” from traditional betting-site products.
CFTC Chair Michael Selig, the agency’s sole commissioner who has prioritized prediction markets, has publicly asserted exclusive CFTC jurisdiction over event contracts. In recent months he has opened a proposed rule for comment, filed an amicus brief in a Ninth Circuit case involving Nevada regulators, and said the commission sued Arizona, Connecticut and Illinois to block what it views as unlawful state regulation. Selig told a policy summit that the agency’s view of covered event contracts is broad: “It includes events on sports, it includes events in politics, it includes corn and grains and all sorts of things,” while noting exceptions for contracts “readily susceptible to manipulation.”
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