Third Circuit Bars New Jersey From Temporarily Blocking Kalshi's Sports Prediction Markets

A federal appeals court on Monday said New Jersey may not temporarily bar prediction-market operator Kalshi from offering its sports-related event contracts, handing the company a significant boost as state regulators ramp up enforcement efforts. In a 2-1 decision, a panel of the U.S. Court of Appeals for the Third Circuit held that New Jersey cannot pursue an enforcement action against Kalshi because the products at issue fall under the federal Commodity Exchange Act, not the state's gambling laws. The majority noted that Kalshi began offering sports-related event contracts on its designated contract market (DCM) exchange and self-certified that the contracts comply with applicable laws and regulations, meaning they were presumptively approved under federal law. The panel added that the Commodity Futures Trading Commission (CFTC) has not determined that Kalshi's sports-related event contracts run contrary to the public interest, nor has the agency initiated enforcement actions against such contracts. The court rejected New Jersey's argument that Kalshi's contracts are not "swaps" covered by the Commodity Exchange Act because the outcome of a sports game is not "joined or connected" to a financial, economic, or commercial instrument or measure. The majority said the state's proposed "joined or connected" requirement would impose a higher bar than the statute demands. The decision was signed by Chief Judge Michael Chagares and Circuit Judge David Porter. Circuit Judge Jane Roth dissented, writing that New Jersey's rules do not "undermine the congressional objectives" of the Commodity Exchange Act and that the products offered on Kalshi's platform amount to sports gambling. She cited contracts tied to the winner of a National Football League game, the point spread, and the combined total points scored. Across the U.S., states have filed lawsuits and issued cease-and-desist orders against prediction-market providers including Kalshi and Polymarket, arguing that sports-related contracts violate state gambling laws. The CFTC has taken the position that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts state rules. Courts have reached different conclusions: some state courts have granted early temporary restraining orders or preliminary injunctions in states' favor, while federal district courts have been more divided. Appellate rulings have also varied. While the Third Circuit's decision signals momentum for prediction-market firms on federal preemption, the Ninth Circuit last month declined to block a Nevada enforcement action, allowing the state to pursue a temporary restraining order and preliminary injunction against Kalshi. Another Ninth Circuit hearing involving multiple companies is scheduled for later this month. CFTC Chairman Michael Selig said Monday at an event hosted by Vanderbilt University and the Blockchain Association that the agency must defend its "exclusive jurisdiction over these markets." The CFTC has filed an amicus curiae brief in the Ninth Circuit ahead of a hearing next week. "Our definition of commodity and statute is very broad. It includes events on sports, it includes events on politics, it includes corn and grains and all sorts of things," Selig said. "It doesn't really distinguish between if you're offering an event contract on grains, [that] you're regulating that differently than an event contract on sports."