An appeals court ruled Monday that New Jersey cannot temporarily ban prediction market provider Kalshi, giving the platform a much-needed victory in the face of an onslaught of state enforcement actions.
The 3rd Circuit Court of Appeals panel ruled 2-1 that the state could not pursue enforcement action against Kalshi because the company’s products are governed by the federal Commodity Exchange Act, not New Jersey gambling law.
“Kalshi began offering sports-related event contracts on its DCM exchange,” the majority ruling said. “Kalshi has self-certified that it complied with applicable laws and regulations, and therefore these event contracts are presumed to have been approved under federal law… To date, the CFTC has not determined that Kalshi’s sports-related event contracts violate the public interest.”
The ruling, signed by Chief Judge Michael Chagares and Circuit Judge David Porter, said the CFTC has not taken any enforcement action regarding “sports-related event contracts.”
“New Jersey contends that Calhy’s event contract does not constitute an ‘exchange’ covered by the Act because the results of the sporting event are not ‘joined or connected’ with a financial, economic, or commercial instrument or measure,” the ruling went on to add. “But its ‘join or connect’ requirement raises the bar beyond [Commodity Exchange] Action is required. “
Circuit Judge Jane Ross, who dissented, said New Jersey’s rule did not “defeat Congressional objectives under the Commodities Exchange Act” and that the actual products offered on Calshe’s platform “qualified as sports gambling,” citing contracts for betting on the winner of an NFL game, the game’s point spread and total points as examples.
U.S. states have begun filing lawsuits or issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging their sports-related contracts violate state gambling laws. The CFTC considers prediction market or event contracts to be swaps governed by the Commodity Exchange Act, which preempts these state rules.
Different courts have issued different rulings. Some state courts have filed preliminary temporary restraining orders or preliminary injunctions in favor of the states, but the situation in federal district courts is more complicated.
The situation in the Court of Appeal was equally mixed. While the Third Circuit’s ruling on Monday suggested that prediction market providers will prevail on their argument that the Commodity Exchange Act preempts those state rules, the Ninth Circuit declined to block another state enforcement action in Nevada last month, clearing the way for the state to obtain a temporary restraining order and preliminary injunction against Kalshey. The Ninth Circuit will hold another hearing with several companies later this month.
CFTC Chairman Michael Selig said on Monday at an event hosted by Vanderbilt University and the Blockchain Association that it was important for the federal regulator to defend its “exclusive jurisdiction over these markets.” The U.S. Commodity Futures Trading Commission (CFTC) filed an amicus brief with the Ninth Circuit ahead of a hearing next week.
“Our definition of goods and regulations is very broad. It includes sporting events, it includes political events, it includes corn and grains and all kinds of things,” he said. “It doesn’t really differentiate if you offer a grain activity contract, [that] You’re regulated differently than a sports contract. “
