Kalshi scored a major legal win when the U.S. Court of Appeals for the Third Circuit ruled 2-1 that New Jersey cannot use state gambling law to block its sports prediction contracts. The decision gives Kalshi a stronger legal foundation to keep offering those contracts in the state while the broader fight over prediction markets continues.
The majority concluded that the Commodity Exchange Act controls because the contracts trade on a CFTC-licensed designated contract market. That finding matters because it places the contracts inside a federal derivatives framework rather than under New Jersey’s gambling rules.
Federal authority, not state gambling law, controls the dispute
Judge David J. Porter, joined by Chief Judge Michael A. Chagares, wrote that Kalshi’s sports-related event contracts qualify as swaps under the Commodity Exchange Act. By treating the contracts as swaps, the court placed them under the exclusive jurisdiction of the CFTC and upheld the preliminary injunction allowing Kalshi to continue operating in New Jersey.
The majority viewed the case through the lens of conflict preemption. Its reasoning was that letting states apply their own gambling laws to contracts trading on a federally licensed exchange would create a fragmented system that undercuts the national regulatory structure Congress put in place for designated contract markets.
That logic gave decisive weight to Kalshi’s status as a CFTC-regulated venue. The court did not focus on whether the contracts resemble sports betting in a practical sense as much as it focused on the statutory consequences of trading them on a federally supervised exchange.
The dissent sharpened the divide over what these contracts really are
Judge Jane R. Roth rejected that approach in dissent and argued that the contracts were, in substance, too close to ordinary sports betting products. She described Kalshi’s registration and labeling as “alchemy” and said the contracts were “virtually indistinguishable” from products offered by mainstream sportsbooks.
The majority did not accept that functional comparison as the deciding test. Instead, it treated the federal license and the Commodity Exchange Act framework as the controlling legal facts, reinforcing the idea that regulatory status can outweigh similarity to traditional betting markets.
The ruling does not end the wider conflict around prediction markets, but it does shift the balance. For now, Kalshi leaves the case with a stronger preemption argument, less immediate legal pressure in New Jersey, and a better position to defend similar contracts as other disputes continue across states and federal venues.
The practical effect is immediate even if the broader legal war remains unresolved. The decision reduces short-term uncertainty around Kalshi’s access to the New Jersey market and supports the view that CFTC oversight can offer a meaningful shield against state-level gambling challenges, at least for now.
