Federal court rules New Jersey can’t regulate prediction markets
A US federal appeals court has ruled that New Jersey cannot block prediction market operator Kalshi from offering its event-based contracts to residents in the state.
In a 2-1 decision, the third US Circuit Court of Appeals found that Kalshi’s contracts, which allow users to trade on the outcomes of events such as sports, politics, and culture, fall under federal commodities law rather than state gambling rules.
The court said the Commodity Exchange Act grants the Commodity Futures Trading Commission exclusive oversight, preventing states from enforcing their own regulations in this area.
New Jersey is among several states that sent cease-and-desist orders to prediction market platforms operating in the state. Across the country, state gambling regulatory bodies have paid particular attention to sports-event contracts offered and ruled that they constitute sports wagering without a license.
In the cease-and-desist letter sent from then-New Jersey Attorney General Matt Platkin’s office in June, it accused Kalshi of circumventing state gambling laws by offering sports wagers through a new format.
Two of the three federal judges disagreed, however. Circuit Judge David Proter wrote that, as Kalshi’s sports-event contracts are traded on a Commodity Futures Trading Commission-licensed designated contract market, it gives them exclusive regulatory rights over Kalshi.
Judge Jane Richards was the only one to disagree, saying that Kalshi offered gambling that was “virtually indistinguishable” from US sportsbooks.
New Jersey Attorney General Jennifer Davenport said that her office was evaluating its options going forward.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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The Backstory
How a state cease-and-desist became a federal test case
New Jersey’s clash with Kalshi started like several others across the country, with a cease-and-desist letter asserting the platform’s sports event contracts were unlicensed gambling. Kalshi countered that its products are federally regulated derivatives, not sportsbook wagers, and sought court protection to keep operating while the legal question played out. A federal judge in Newark agreed at the outset, granting a preliminary injunction that allowed the company to continue offering markets in the state. That early win, detailed in a ruling that said New Jersey regulators could not ban Kalshi’s sports prediction markets, framed the fight around preemption: whether the Commodity Exchange Act, and the Commodity Futures Trading Commission that enforces it, leaves any room for state-level oversight of event-based contracts listed on a federally designated exchange.
The appeals court decision now curbing New Jersey’s authority does more than vindicate Kalshi’s position in one state. It punctuates a year in which regulators from Nevada to Maryland sought to bring prediction platforms under gambling laws while federal judges began to sort out what counts as a commodity contract versus a bet. The Third Circuit’s split ruling underscores how unsettled the issue remains even as it narrows the path for states in one important jurisdiction.
A patchwork of rulings shows legal fault lines
The New Jersey outcome contrasts with developments elsewhere. In Maryland, a federal district judge refused to shield Kalshi from state enforcement, finding the company failed to show a likelihood of success on the merits at the preliminary stage. The decision, described in a ruling against Kalshi in the Maryland sports betting case, allowed the state’s lottery and gaming agencies to keep pressing claims that sports outcomes listed on Kalshi amount to unlicensed wagering under state law.
Maryland’s action followed Kalshi’s own move to sue after receiving a cease-and-desist order. In its Maryland filing seeking to block state enforcement, the company argued that Congress established an exclusive federal regime for futures and swaps traded on designated contract markets, leaving no room for states to reclassify federally approved contracts as gambling. That argument is central to Kalshi’s litigation strategy in several venues.
Other states have met resistance in federal court. In Tennessee, a judge temporarily blocked the state’s attempt to force Kalshi to void sports-linked contracts and refund customer deposits, as outlined in a federal order halting Tennessee’s enforcement push. The ruling paused penalties and a potential criminal referral while the court weighs whether CFTC oversight preempts state gambling authority over these markets.
Taken together, the decisions expose the core divide: some judges are willing to treat sports event contracts on a CFTC-regulated exchange as federally protected instruments, while others see them as functionally indistinguishable from sportsbook wagers that fall under state licensing and consumer protection regimes.
Preemption, definitions and who gets to say “what is a bet”
The legal fight turns on two questions. First, does the Commodity Exchange Act give the CFTC exclusive control over event contracts listed on a designated contract market, even when those contracts reference outcomes familiar to sportsbooks such as game winners or point totals. Second, do state gambling laws retain concurrent authority because such products are, in practical effect, wagers offered to the public without the consumer safeguards, tax contributions and responsible gaming checks required of licensed operators.
Kalshi’s stance is that sports event contracts are peer-to-peer swaps with standardized terms and margin requirements, cleared and surveilled under federal derivatives rules. That view won traction in New Jersey at the district court stage and now at the appellate level, as courts credited the CFTC’s licensing framework and market integrity mandates.
States argue substance over form. If a consumer can stake money on whether a team wins and be paid based on that outcome, the product should be treated as a bet subject to local law. Maryland’s district court ruling reflects that skepticism at the preliminary stage, signaling that federal registration alone may not immunize platforms from state gambling requirements when the underlying economic exposure mirrors a sportsbook wager.
Political pressure grows as Congress trains sights on sports markets
The courtroom battles are now intersecting with Capitol Hill. A bipartisan measure introduced by Sen. Adam Schiff and Sen. John Curtis would amend the Commodity Exchange Act to bar CFTC registrants from listing contracts tied to sports, poker, blackjack and similar games. The proposal, covered in a Senate bill that targets sports betting on prediction markets, frames these offerings as backdoor sportsbooks operating nationwide without honoring state consumer protections or generating public revenue.
The bill, if enacted, would short-circuit the preemption question by defining the line in statute rather than leaving it to courts and the CFTC. It would also ease pressure on state regulators who have pursued cease-and-desist orders and, in some instances, contemplated criminal referrals, by foreclosing sports-linked listings at the federal level. For platforms, it would preserve event markets in politics, economics and culture while closing the door on sports, a category that has drawn the most scrutiny and volume.
Why the stakes now extend beyond New Jersey
The Third Circuit’s ruling will immediately shape enforcement posture in states within its reach and embolden platforms to maintain operations where federal oversight is now judicially affirmed. But it does not erase conflicting precedents in other circuits. Maryland’s litigation, already on appeal, could yield a different outcome and deepen the split. Tennessee’s case remains in flux. Other states named in cease-and-desist campaigns, including Nevada, Ohio and Illinois, are watching closely as courts test the limits of federal authority over event-based derivatives.
For state regulators and licensed sportsbooks, the concern is competitive parity and consumer protection. If sports outcomes can trade on federally regulated exchanges without state licensing, the tax base and responsible gaming architecture that underpin legal sports betting could be undermined. For the CFTC and market participants, the priority is regulatory clarity that allows innovation while preventing products that mimic gambling from evading appropriate guardrails.
The path forward will likely come from one of three places. Appellate courts could converge on a common interpretation that treats CFTC-listed sports contracts as preempted commodities or as state-regulated bets. Congress could redefine the boundary by statute, particularly if the Schiff-Curtis bill advances. Or the CFTC could refine its rulemaking and product review to delineate which event contracts are in the public interest and which cross into gambling. Until then, platforms, states and investors face a fragmented map where venue matters as much as legal theory.
What to watch next
Expect immediate motions in related cases to cite the New Jersey appellate ruling as persuasive authority, while Maryland’s appeal tests the opposite view. Watch whether more states seek federal injunctions or negotiate carve-outs for non-sports markets. On the policy front, the scope and momentum of the Senate bill will signal whether Congress intends to settle the sports question broadly. In the markets, platforms may recalibrate offerings toward political and macroeconomic events in jurisdictions where sports remains contested, even as they press the argument that federally cleared contracts deserve uniform national treatment.
