A federal appeals court ruled that a top prediction market can continue its sports operations in New Jersey as state regulators seek to challenge the practice.
A panel on the U.S. Court of Appeals for the Third Circuit ruled Kalshi could face irreparable harm if regulators shut down its sports operations, and instead found, in a 2-1 ruling, that the company should be allowed to continue as a lawsuit makes its way through court.
Prediction markets like Kalshi and Polymarket allow users to buy contracts on various subjects, including political and sports results. A user can purchase contracts at a set rate — say, 25 cents for an underdog football team to win — and if correct, they are paid a dollar for each contract. If incorrect,
Users trade contracts with each other, not with the platform, distinguishing the operation from sportsbooks, where players place bets “against the house.” Prediction markets like Kalshi primarily make money off transaction fees, meaning they build revenue regardless of the outcome of an event.
The panel found the federal Commodity Futures Trading Commission has “exclusive” jurisdiction over the regulation of prediction markets, potentially leaving New Jersey’s gambling regulators few options as the case moves forward.
“Because Kalshi’s sports-related event contracts are traded on a CFTC-licensed [designated contract market] and depend on event outcomes associated with economic consequences, they fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction,” the opinion reads.
Last year, New Jersey’s Division of Gaming Enforcement issued Kalshi a cease-and-desist letter stating its sports prediction markets violated New Jersey law. Kalshi promptly sued New Jersey to prevent the state from enforcing its gambling laws.
The ruling is not a final decision in the case; the majority simply found Kalshi’s case could succeed on the merits, protecting it from being shut down in the meantime.
Chief Judge Michael Chagares, a George W. Bush appointee, and Circuit Judge David J. Porter, a first-term Donald Trump appointee, served as the majority — Porter wrote the opinion. Senior Judge Jane Richards Roth, a George H.W. Bush appointee, wrote a dissent.
“People use prediction markets because they’re more fair, transparent, and reward being right,” Kalsi CEO Tarek Mansour said in a statement after the ruling. “Free markets work. We should keep them that way. This is a big win for the industry and millions of users.”
Many states have taken action against markets like Kalshi and Polymarket, accusing them of implementing de facto gambling operations without acceding to gambling regulations or tax policy. More than 20 states have filed civil suits against Kalshi, and Arizona’s attorney general filed criminal charges against the company. A judge in Nevada has temporarily blocked Kalshi from operating within the state
In her dissent, Roth wrote that for an NFL game, she had the opportunity on Kalshi to trade on the game’s winner, points scored, touchdown scorers, and more, options that are “virtually indistinguishable” from a sportsbook.
“I see Kalshi’s actions as a performative sleight meant to obscure the reality that Kalshi’s products are sports gambling,” Roth wrote in the dissent. “Because Kalshi is facilitating gambling, it can be subjected to state regulation.”
Prediction markets could pose a threat to New Jersey’s sportsbooks and limit the state’s tax revenue, which brought in more than $200 million in sports gambling revenue last year.
“[The] question of whether sports-event contracts are swaps is a thorny issue with the potential to radically upend the legal landscape governing the gambling industry, and I am not convinced the Majority’s analysis does this issue justice,” she wrote.