A US appeals court has convicted New Jersey gambling authorities of bringing enforcement proceedings against prediction marketplace platform Kalshi over sports event contracts.
In an opinion released Monday, a panel of judges on the U.S. Court of Appeals for the Third Circuit ruled 2-1 in favor of Kalshi’s argument that the company has a “reasonable chance of success,” arguing that the Commodity Exchange Act preempts state law, setting the stage for a potential gaming regulation battle before the U.S. Supreme Court.
“This is a big win for the industry and millions of users,” Tarek Mansour, CEO of Kalshi, said in a social media post on X.
The appeals court’s opinion affirmed a lower court ruling in which Kalshi argued that the U.S. Commodity Futures Trading Commission (CFTC) had “exclusive jurisdiction” to regulate sports event contracts as swaps within its purview.
“Allowing New Jersey to enforce its gaming laws and state constitution would create an obstacle to enforcement of the act because such state enforcement would prohibit Kalshi, which operates a licensed [designated contract market] under the exclusive jurisdiction of the CFTC from offering contracts for sporting events in New Jersey,” wrote U.S. District Judge David J. Porter. “This state regulation is precisely the patchwork that Congress completely replaced when it created the CFTC.”
The district court’s ruling came just days after a Nevada judge extended a ban on Kalshi offering event-based contracts after several other state regulators cracked down on sports betting on prediction markets. The diversity of rulings at the state level could lead to one of the cases being taken up by the U.S. Supreme Court, potentially overturning a 2018 decision giving states the authority to regulate sports gambling.
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In her dissent, U.S. District Judge Jane Roth said the prediction markets platform’s actions constitute a “performative ploy intended to obfuscate the reality that Kalshi products are sports gambling,” adding that the company’s event contracts are “virtually indistinguishable” from those on betting sites:
“[T]The question of whether sporting event contracts constitute an exchange is a sensitive issue that could radically upend the legal landscape governing the gaming industry, and I am not convinced that the majority’s analysis is correct.
CFTC Chairman Maintains Agency’s Position on Prediction Markets
CFTC Chairman Michael Selig, the financial agency’s sole commissioner after the departure of acting chair Caroline Pham in December, has identified forecast markets as one of the commission’s top issues since taking office. Over the past four months, Selig has maintained that the CFTC has “exclusive jurisdiction” to regulate event contracts in prediction markets, submitted the proposed rule to public comment and filed an amicus brief in support of his position with the Ninth Circuit Court of Appeals in a case involving Nevada gambling authorities.
Last week, the regulator sued Arizona, Connecticut and Illinois to prevent them from continuing what it says are illegal efforts to regulate prediction markets.
“Our definition of commodity and statute is very broad” – Selig he said on Monday at the Digital Assets and Emerging Tech Policy Summit at Vanderbilt University. “It covers sporting events, it covers political events, it covers corn, it covers grains, it covers a lot of other things. There’s really no distinction between whether you’re offering an event contract for grains, you regulate it differently than an event contract for sports.”
The CFTC chairman added that there are exceptions for contracts for events that are “easily subject to manipulation.”
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