Federal Appeals Court Upholds CFTC Jurisdiction Over Kalshi's Sports Prediction Markets
A federal appeals court has delivered a significant ruling, declaring that New Jersey gaming regulators cannot prevent Kalshi from operating its sports prediction market within the state. The decision, issued by a three-judge panel of the Philadelphia-based third US Circuit Court of Appeals, marks a pivotal moment in the ongoing legal battle over state versus federal oversight of prediction markets.
Exclusive Jurisdiction for the Commodity Futures Trading Commission
In a 2-1 ruling, the court found that the US Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over the sports-related event contracts traded on Kalshi's platform. This conclusion stems from the classification of these contracts as "swaps," a type of derivative regulated under the Commodity Exchange Act. The CFTC had previously granted Kalshi a license to operate as a designated contract market (DCM), reinforcing its regulatory authority.
US Circuit Judge David Porter, writing for the majority, emphasized that "Kalshi's sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction." This ruling aligns with the CFTC's stance, which has been actively opposing state-level regulations in other jurisdictions, including recent lawsuits against Arizona, Connecticut, and Illinois.
Industry Reaction and Legal Implications
Tarek Mansour, CEO of Kalshi, hailed the decision as a "big win for the industry and millions of users," highlighting its potential to shape the future of prediction markets. However, the ruling has sparked controversy, with dissenting Judge Jane Richards Roth arguing that Kalshi's offerings are "virtually indistinguishable" from traditional online sportsbooks like DraftKings and FanDuel, thus constituting gambling that should fall under state purview.
New Jersey Attorney General Jennifer Davenport expressed disappointment, stating that the ruling allows "certain companies to offer sports gambling in our states without following the careful gaming rules that everyone else follows." Her office is evaluating options, including a potential request for a rehearing by the full third circuit. This legal issue remains unresolved in other courts, with similar cases pending in San Francisco and rulings in Nevada and Massachusetts that have temporarily restricted Kalshi's operations.
Background and Broader Context
The dispute originated when New Jersey sent Kalshi a cease-and-desist letter in 2024, alleging violations of state gambling laws, particularly regarding bets on collegiate sports. Kalshi responded by suing the state, arguing for federal pre-emption under the Commodity Exchange Act. A lower-court judge had previously sided with Kalshi, issuing a preliminary injunction that New Jersey appealed.
This case represents the first time a federal appeals court has addressed the core issue of state versus federal regulation in prediction markets, setting a precedent that could influence ongoing and future litigation. As prediction markets continue to grow in popularity for events like sports and elections, this ruling underscores the complex regulatory landscape shaping their operation across the United States.
