Federal Court Rules New Jersey Cannot Block Kalshi Prediction Markets

The U.S. Court of Appeals for the Third Circuit handed down a 2-1 ruling that redraws the boundary between federal derivatives law and state gambling authority: New Jersey regulators cannot use the state's gaming statutes to block Kalshi EX, a federally licensed prediction-market operator, from offering sports-related event contracts to state residents.

For anyone trading on Kalshi's platform, the ruling means continued access to sports event markets. For state regulators everywhere, it signals a much harder legal road ahead.

Writing for the majority, U.S. Circuit Judge David Porter held that Kalshi's contracts qualify as "swaps" traded on a CFTC-licensed designated contract market, and that the Commodity Exchange Act vests the federal government with exclusive authority over those instruments. New Jersey's cease-and-desist order, which targeted Kalshi's listings of sports-related event contracts including those tied to collegiate sports outcomes, could not stand against that federal preemption.

The dispute began after New Jersey's Division of Gaming Enforcement sent Kalshi a cease-and-desist letter arguing that the company's sports contracts violated state gambling laws. Kalshi, which was founded to let retail customers take positions on real-world outcomes ranging from elections to economic data releases, countered that its products are derivatives governed exclusively by the Commodity Exchange Act. A federal district court issued a preliminary injunction allowing Kalshi to continue operating while litigation proceeded; the Third Circuit majority upheld and extended it.

Kalshi CEO Tarek Mansour called the outcome "a big win for the industry and millions of users." The CFTC reinforced the ruling with a statement reaffirming its exclusive jurisdiction over derivatives on licensed designated contract markets, a position the agency has been actively pressing in court. The Commission recently sued several states that sought to apply gaming regulations to CFTC-licensed platforms, signaling a deliberate federal strategy to establish uniform derivatives oversight rather than yield to state-by-state enforcement.

The lone dissenter on the panel warned that Kalshi's products "resemble traditional sports betting" and argued that states retain a legitimate interest in protecting consumers and minors through local gambling laws. That concern points to the most significant policy gap the ruling leaves open: the Commodity Exchange Act contains no consumer protections specifically tailored to event-contract trading, and neither Congress nor the CFTC has yet filled that void.

The precedent extends well beyond sports. Kalshi and similar operators offer contracts on elections, Federal Reserve decisions, and economic indicators. The Third Circuit's reasoning applies equally to all of them: any CFTC-licensed designated contract market gains, through this decision, a federal shield against state enforcement regardless of how closely the products resemble gambling to local regulators. If other circuits adopt the same logic, the patchwork of state gambling oversight that has constrained digital prediction markets since their emergence could give way to a nationally uniform, federally governed market that individual states have little formal power to shape.