Kalshi Prevails in Legal Battle Against New Jersey Over Sports-Related Event Contracts
Federal Court Rules in Favor of Kalshi
A significant legal development has emerged as the US Court of Appeals for the Third Circuit ruled in a 2-1 decision that New Jersey cannot prevent Kalshi from providing contracts linked to sports events to residents of the state. The court concluded that these contracts fall squarely under the jurisdiction of the Commodity Futures Trading Commission (CFTC), not state regulators.
Dispute Over Classification of Sports Prediction Markets
The core issue in this ongoing legal conflict is whether sports prediction platforms like Kalshi represent financial trading products or simply covert sports betting. Kalshi asserts that their platform offers “event contracts,” which are derivatives managed by the CFTC and cover a range of subjects from elections to various sports outcomes.
New Jersey regulators have taken an opposing view, issuing a cease-and-desist order in 2025 claiming Kalshi offers unlicensed sports betting activities that violate state law. This clash has sparked a broader legal battle with potential implications for similar services in other states.
Federal Authority Takes Precedence Over State Regulation
Judge David Porter, part of the majority, emphasized that federal law preempts state attempts to regulate these contracts since they qualify as swaps traded on a federally regulated exchange. This interpretation significantly limits how states can regulate these markets, even though sports betting is traditionally overseen at the state level.
Ongoing Disagreement and Future Legal Challenges
However, the decision did not receive unanimous support. Judge Jane Richards Roth dissented, arguing that Kalshi’s offerings closely resemble traditional sports betting and therefore should be subject to the same state regulations to avoid a regulatory loophole that bypasses consumer protections.
Kalshi’s CEO, Tarek Mansour, hailed the ruling as a victory for users and the emerging prediction market industry. The CFTC echoed this sentiment, reiterating its exclusive control over trading on regulated exchanges. The federal agency has also challenged states like Arizona, Illinois, and Connecticut for attempting to regulate such markets.
New Jersey’s Next Steps and the Path Forward
Despite losing this round, New Jersey officials are exploring further legal options, including requesting a rehearing before the entire appellate court. The issue remains contentious in other jurisdictions, with experts predicting that the dispute over regulation of prediction markets is likely headed for resolution by the Supreme Court in the coming years.
