Search Articles
PHILADELPHIA (CN) — A Third Circuit panel ruled Monday that states lack jurisdiction to regulate sporting event contracts on prediction markets like Kalshi, effectively handing exclusive regulation of the rapidly growing industry to a single federal agency.
In the first federal appeals ruling on state regulation of prediction markets, the three-judge panel ruled 2-1 in favor of Kalshi in their case against New Jersey to offer event contracts for sporting events.
Writing for the majority, U.S. Circuit Judge David J. Porter agreed with Kalshi that its event contracts constitute “swaps,” a type of derivative contract exclusively regulated by the Commodity Futures Trading Commission, a federal agency founded to regulate U.S. derivatives markets, under the Commodity Exchange Act and traded by licensed designated contract markets, or DCMs — a license Kalshi obtained in 2020.
New Jersey had suggested to the panel that Kalshi’s sporting event contracts fall beyond the scope of swaps because the outcome of a sports game is not “joined or connected” with a financial, economic or commercial instrument. However, Porter found that the event contracts need only be “associated with a potential financial, economic or commercial consequence” — a hurdle that the event contracts easily clear.
“Because Kalshi’s sports-related event contracts are swaps under the [Commodity Exchange Act], the district court properly defined the scope of field preemption as the regulation of trading on a DCM (a form of futures trading) rather than as gambling (a broader and traditionally state-regulated field),” the Donald Trump appointee wrote. “Thus, the district court did not err in holding that New Jersey law is field preempted by the act.”
Chief U.S. Circuit Judge Michael Chagares, a George W. Bush appointee, also ruled in favor of Kalshi.
While appearing nearly identical to traditional sports betting, a few technical distinctions separate event contracts for sporting events: For one, whereas odds in traditional sports betting are determined by the casino or “house,” there is no house to bet against in event contracts — the odds are determined by the event contract market itself.
Additionally, event contracts can be bought and sold at any time before the event closes, whereas traditional bets cannot be taken out until the event ends.
Those technical distinctions weren’t enough for New Jersey to look the other way, though — while sports betting is legal in the Garden State, state law prohibits betting on New Jersey-based collegiate teams, as well as bets on any collegiate games played within the state.
After Kalshi opened event contracts without those same restrictions, New Jersey sent Kalshi a cease-and-desist letter, stating that the company’s listed event contracts violated state gambling laws.
In response, Kalshi sued the New Jersey Division of Gaming Enforcement and several state officials in March 2025, asserting in New Jersey federal court that its sports-related event contracts are not subject to gambling regulations. Instead, the company argued, their event contracts are exclusively under jurisdiction of the federal commodity commission.
In April 2025, U.S. District Judge Edward S. Kiel — a Joe Biden appointee — granted a preliminary injunction in Kalshi’s favor, temporarily blocking New Jersey from enforcing restrictions on Kalshi’s sports-related event contracts.
“The Third Circuit ruled in Kalshi’s favor,” wrote Kalshi CEO Tarek Mansour on Monday via X. “People use prediction markets because they’re more fair, transparent, and reward being right. Free markets work. We should keep them that way. This is a big win for the industry and millions of users.”
Rounding out the panel, U.S. Circuit Judge Jane R. Roth dissented from the majority, finding no practical difference between Kalshi’s offerings and those of traditional betting markets.
“These offerings are virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel,” the George H.W. Bush appointee wrote. “I see Kalshi’s actions as a performative sleight meant to obscure the reality that Kalshi’s products are sports gambling. Because Kalshi is facilitating gambling, it can be subjected to state regulation.”
A representative for the New Jersey Office of the Attorney General could not be immediately reached for comment.
Follow @JacksonHealsSubscribe to our free newsletters
Our weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.
