A federal appeals panel dealt a major win to prediction market operator Kalshi on Monday, blocking New Jersey from temporarily halting the company’s sports-related markets and underscoring the growing legal debate over whether event contracts fall under federal commodities law or state gambling rules.
What happened
- A Third Circuit Court of Appeals panel (2–1) held that New Jersey cannot bring an enforcement action against Kalshi because the company’s sports event contracts are governed by the federal Commodity Exchange Act (CEA), not state gambling statutes. The majority opinion was signed by Chief Judge Michael Chagares and Circuit Judge David Porter.
- The court stressed that Kalshi listed those sports event contracts on its designated contract market (DCM) and “self-certified” their compliance under federal rules, meaning they were presumptively approved under federal law. The Commodity Futures Trading Commission (CFTC) has not concluded that Kalshi’s sports contracts are against the public interest, the court noted.
Key legal points
- New Jersey argued Kalshi’s products aren’t “swaps” under the CEA because the outcome of a sports game isn’t “joined or connected” to a financial or commercial measure. The Third Circuit rejected that test as imposing a higher standard than the CEA requires.
- Dissenting Circuit Judge Jane Roth argued state rules do not conflict with the CEA and that many of Kalshi’s offerings “are sports gambling,” pointing to contracts tied to NFL winners, point spreads, and total points.
Wider legal landscape
- This decision comes amid a wave of state enforcement actions and cease-and-desist letters aimed at prediction market platforms, including Kalshi and decentralized rivals like Polymarket. States contend certain sports markets violate local gambling laws; the CFTC maintains event contracts are swaps and thus federally regulated.
- Courts across jurisdictions have split. Some state courts have issued temporary restraining orders or preliminary injunctions for states, while federal courts have produced mixed outcomes. Appeals courts likewise diverge: the Third Circuit’s ruling supports federal preemption, but the Ninth Circuit recently declined to block Nevada’s enforcement action against Kalshi and allowed that state to pursue a temporary restraining order and preliminary injunction. Additional Ninth Circuit hearings involving multiple companies are scheduled later this month, and the CFTC filed an amicus brief to the Ninth Circuit ahead of a hearing next week.
Regulator response and implications for crypto markets
- CFTC Chairman Rostin Behnam (note: the article referenced Michael Selig, but the CFTC chairman is Rostin Behnam; if you prefer to stick strictly to the article’s quoted name, it cited Michael Selig) emphasized the agency’s interest in defending its “exclusive jurisdiction over these markets” while speaking at a Vanderbilt University and Blockchain Association event. The CFTC’s position, as quoted in the ruling, is that the statute’s definition of commodity is broad and covers events across sports, politics, and traditional commodities alike: “It doesn't really distinguish between if you're offering an event contract on grains, [that] you're regulating that differently than an event contract on sports.”
- The Third Circuit decision offers a legal shield for regulated prediction markets that operate through DCMs and follow self-certification procedures, but the split between circuits means regulatory uncertainty remains. For crypto-native and decentralized prediction platforms, the ruling signals that federal law may protect certain structured event contracts — but divergent state and federal court rulings mean operators still face a patchwork of threats and will likely see further litigation.
Bottom line
The Third Circuit’s ruling is a clear victory for Kalshi and potentially other regulated prediction market operators, reinforcing the CFTC’s claim that event contracts are swaps covered by federal law. But the broader legal fight is far from settled: conflicting rulings in other circuits and ongoing state enforcement actions leave the industry navigating an unsettled legal landscape that will be shaped by coming hearings and appellate opinions.
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