A US appeals court ruled that New Jersey cannot enforce its gambling laws against Kalshi's contracts tied to sports outcomes, siding with the company and reinforcing federal oversight in a decision that could have wider regulatory implications.
The Third Circuit Court of Appeals said on 6 Apr that event contracts tied to sports outcomes fall under federal commodities law, not state gambling rules, when offered on platforms regulated by the Commodity Futures Trading Commission (CFTC), such as Kalshi.
The ruling limits the ability of states to apply gambling laws to such markets when they operate under federal regulation. New Jersey had argued that Kalshi's sports contracts amounted to illegal betting, but the court rejected that view, finding that federal law takes precedence in this case.
Kalshi operates a federally licensed exchange where users trade contracts tied to the outcome of real-world events.
New Jersey can seek a rehearing before the full Third Circuit or appeal to the US Supreme Court.
Broader implications
Beyond prediction markets, the ruling could shape how other federally regulated financial products are treated across the US.
In an analysis of the decision, Mike Katz, a partner at legal firm Manatt, Phelps & Phillips, said the ruling strengthens a principle known as "preemption," the idea that federal rules can override state laws when a company operates under a national licence.
That approach could extend to other financial products where federal and state rules overlap. Areas such as stablecoins, derivatives trading and emerging technologies like AI could face similar questions, particularly where companies operate under federal licences but face restrictions at the state level.
"The GENIUS Act... would create a federal licensing framework for stablecoin issuers. Whether that framework preempts state money transmission laws and New York's BitLicense is an open question," Katz said.
The CFTC has already begun testing that boundary, backing lawsuits against several states over prediction markets and arguing that state-level enforcement interferes with federal oversight.
CFTC moves to define rules
At the same time, the agency is moving to define its approach. It opened a formal review of prediction markets in March, seeking public comment on whether contracts tied to sports and other events should be restricted on public interest grounds.
