Third Circuit backs federal preemption for Kalshi sports contracts
A three-judge panel of the Third US Circuit Court of Appeals ruled 2-1 on Monday that New Jersey's Division of Gaming Enforcement cannot bring an enforcement action against prediction market platform Kalshi, finding the company's sports-related event contracts fall under the Commodity Exchange Act rather than state gambling law.
The majority, signed by Chief Judge Michael Chagares and Circuit Judge David Porter, held that Kalshi self-certified its sports contracts in compliance with applicable regulations and that those contracts are therefore presumptively approved under federal law. Critically, the CFTC has neither determined that Kalshi's sports-related event contracts are contrary to the public interest nor commenced any enforcement actions against them, the ruling noted.
New Jersey had argued that Kalshi's contracts are not "swaps" covered by the Commodity Exchange Act because the outcome of a sporting event is not sufficiently connected to a financial, economic, or commercial instrument. The majority rejected this framing, finding it would impose a standard beyond what the Act requires.
Circuit Judge Jane Roth dissented, arguing that New Jersey's rules do not undermine the congressional objectives of the Commodity Exchange Act and that Kalshi's products are, in substance, sports gambling. She cited contracts on the winner of an NFL game, the point spread, and combined points scored as illustrative examples.
A fractured regulatory map
The ruling lands in a contested legal environment. States across the US have filed lawsuits or issued cease-and-desist orders against prediction market providers including Kalshi and Polymarket, alleging violations of state gambling statutes. Federal district courts have issued mixed rulings, and appeals courts have now diverged at the circuit level.
Last month the Ninth Circuit declined to block a Nevada enforcement action, clearing the way for that state to obtain a temporary restraining order and preliminary injunction against Kalshi. A further Ninth Circuit hearing involving multiple companies is scheduled later this month.
CFTC Chairman Michael Selig, speaking Monday at an event hosted by Vanderbilt University and the Blockchain Association, said it was important that the regulator defend its "exclusive jurisdiction over these markets." The CFTC has filed an amicus curiae brief to the Ninth Circuit ahead of that hearing. Selig argued that the CFTC's definition of commodity is broad and does not distinguish between event contracts on sports and those on agricultural products.
The split between the Third and Ninth circuits raises the prospect that the question of federal preemption in prediction markets will eventually require resolution at a higher level, potentially the Supreme Court.
