TLDR
- The US Third Circuit Court of Appeals ruled 2-1 in favor of Kalshi, blocking New Jersey from enforcing state gambling laws against the prediction market platform
- Judge Roth’s dissent argued Congress never intended the CFTC to override state gambling regulations when it amended the Commodity Exchange Act in 2010
- Industry figures are split on whether the ruling could threaten state-regulated gambling operations across the country
- The ruling is a preliminary injunction and only found a “reasonable likelihood of success,” not a final decision
- Legal experts say the case is likely headed to the Supreme Court, with New Jersey having 14 days to request an en banc hearing
A federal appeals court has sided with prediction market platform Kalshi in a closely watched legal battle over whether federal regulations can override state gambling laws.
The US Third Circuit Court of Appeals ruled 2-1 to uphold a preliminary injunction that stops New Jersey from enforcing its state gambling laws against Kalshi.
The decision marks the biggest legal win yet for the company in its ongoing fight with state regulators.
Judge Roth’s Dissent Raises Federal vs. State Concerns
However, the ruling was not unanimous. Judge Jane Richards Roth issued a sharp dissent arguing that Congress never meant for the Commodity Futures Trading Commission to step on states’ rights to regulate gambling.
Roth pointed to an exchange in the congressional record between senators Dianne Feinstein and Blanche Lincoln. During that exchange, Lincoln said Congress expected the CFTC to block contracts that were “contrary to the public interest” and existed mainly to allow gambling.
Lincoln specifically mentioned contracts tied to the Super Bowl, the Kentucky Derby, and the Masters Golf Tournament as examples of contracts that “would not serve any real commercial purpose.”
Roth also argued that Kalshi’s broad definition of swaps could cover “virtually every kind of wager,” including a bet on a neighborhood ping pong match. She said Congress could not have intended such a far-reaching outcome.
The judge pointed to Kalshi’s own Instagram posts, which she said “routinely refer to its products as sports betting.” She wrote that “basic abductive reasoning” suggests the platform’s products are gambling.
The dissent drew fast reactions from both sides of the debate. Sporttrade founder Alex Kane pushed back on X, saying that both state-regulated sportsbooks and federally regulated exchanges can coexist.
Kane argued that the CFTC has never brought an enforcement action against a state-regulated sportsbook, which he said shows the agency is not trying to take over state gambling.
Legal Experts Warn the Fight Is Far From Over
Responsible gambling advocate Jessica Welman countered that she had spoken with multiple legal experts who believe the end of state-regulated gambling is “a very real possibility” depending on how this case plays out.
Gaming industry analyst Steve Ruddock noted that the CFTC is not trying to take jurisdiction over state sportsbooks “yet,” adding that people tend to leave that word out of the debate.
Kane responded by suggesting that a federal regulatory approach might actually be better given what he called the states’ “incredibly anti-consumer and anti-innovation regulatory regime.”
Legal experts have stressed that this ruling is preliminary. Holland and Knight Law noted that the court only found a “reasonable likelihood of success” for Kalshi, not a final ruling on the merits.
Gaming lawyer Daniel Wallach said on X that New Jersey now has 14 days to request an en banc hearing before the full Third Circuit. While such hearings are rarely granted, the split decision may give the state a better chance.
Ruddock wrote in his April 7 newsletter that the ruling is “not a destination” but “just another stop on the way to the Supreme Court.”
He also warned against reading too much into any single ruling. Ruddock pointed out that New Jersey had a 14-2 win-loss record before this decision and compared the situation to the state’s long legal battle over sports betting, where it lost every lower court ruling before winning at the Supreme Court.
New Jersey has until late April to decide whether to seek en banc review of the Third Circuit’s 2-1 decision.
