A US federal appellate court recently issued a decision that the New Jersey Division of Gaming Enforcement (NJDGE) cannot enforce state sports-betting laws against the financial services company Kalshi while ongoing litigation unfolds. This ruling provides Kalshi, a prediction market facilitator, with the interim ability to continue offering its event contract trading platform, despite legal challenges. The Third Circuit Court of Appeals upheld a district court’s decision that enjoined NJDGE, permitting Kalshi to operate freely during the trial proceedings.
The case revolves around a debate on whether federal law, specifically the Commodity Exchange Act (CEA), preempts New Jersey’s state laws governing gambling. The CEA, particularly after amendments in 2010, extends the jurisdiction of the Commodity Futures Trading Commission (CFTC) to include “swaps.” These swaps are broadly defined to cover agreements or contracts with financial outcomes dependent on specific contingencies, which, in Kalshi’s business model, include sporting events.
Kalshi’s unique approach involves offering “event contracts,” marketed as derivatives—financial tools whose value is derived from underlying assets. These contracts leverage public opinion, aiming to harness the “wisdom of the crowd” to assess market risks. An example noted by the court is a contract predicting the occurrence of an earthquake in a given location on a specific date, allowing participants to trade based on their forecast as either likely “yes” or unlikely “no” outcomes.
The introduction of sports-related event contracts in 2025 marked a significant expansion for Kalshi. New Jersey contended that such contracts should be outside the CEA’s purview, arguing that the state retained jurisdiction over sports betting on college events. The court, however, found that Kalshi’s activities are more aligned with federal futures trading than traditional gambling, thus likely preempted by federal law.
In its decision, the court also addressed whether sporting event contracts were sufficiently connected to an underlying asset to qualify as swaps. The ruling indicated that these contracts need only be associated with a commercial consequence, noting the financial impact of sporting events through various associated industries—advertising, sponsorships, and broadcasting—as evidence of such connections.
Nevertheless, dissenting opinions, like that of Judge Jane Roth, caution against the parallels between Kalshi and traditional sports betting platforms which remain under state regulation. Roth pointed out the similarities in service offerings, highlighting that Kalshi’s contracts allowed users to “bet” on sports outcomes much like online sportsbooks, raising concerns about the ostensibly semantic distinction between swaps and gambling.
For more on this legal ruling, you can read the detailed coverage on JURIST.