A U.S. appeals court ruled 2-1 that New Jersey cannot block Kalshi’s sports event contracts, reinforcing federal oversight of prediction markets. The decision strengthens the Commodity Futures Trading Commission’s (CFTC) authority and sets a precedent for similar disputes across states.
The ruling from the U.S. Court of Appeals for the Third Circuit determined that entities registered as designated contract markets (DCMs) fall under exclusive federal jurisdiction. Kalshi had challenged cease-and-desist orders issued by New Jersey and other states, arguing its contracts are regulated commodities, not gambling products.
Does Federal Oversight Override State Gambling Laws?
Judges sided with that interpretation, stating the Commodity Exchange Act grants the CFTC primary control over trades conducted on regulated exchanges. The court noted that while states retain authority over off-exchange activity, contracts listed on federally licensed platforms fall outside their reach.
New Jersey had argued that sports-related contracts violate its gambling framework. However, the majority opinion rejected that view, concluding the statutory language supports federal preemption in this context.
“Congress gave the CFTC exclusive jurisdiction over trades on DCMs,” the court wrote in its opinion.
Yet a dissenting judge disagreed, calling Kalshi’s model “sports gambling” and arguing it should remain subject to state regulation.
The decision aligns with the CFTC’s recent actions against multiple states, including Arizona, Illinois, and Connecticut, where the agency asserted its authority over prediction markets. This growing tension highlights an unresolved boundary between financial regulation and gambling law.
Kalshi CEO Tarek Mansour described the ruling as a “big win,” emphasizing transparency and efficiency as core benefits of prediction markets. But will other jurisdictions accept federal oversight, or continue to challenge these platforms through local enforcement?
The outcome could shape how event-based contracts evolve within both traditional finance and crypto-linked ecosystems. The next catalyst will likely come from further legal challenges or potential legislative clarification defining the limits of state versus federal control.
