Third Circuit Rules States Can’t Block Kalshi in First-Ever Prediction Market Appeals Decision
The US Court of Appeals for the Third Circuit ruled 2-1 that federal law preempts New Jersey’s gambling statutes against Kalshi
The prediction market legal war just reached a new level. The US Court of Appeals for the Third Circuit ruled 2-1 on Monday that New Jersey cannot enforce its gambling laws against Kalshi’s sports event contracts. It is the first federal appeals court decision in the country to weigh in on whether state gambling laws apply to prediction markets.
The ruling came three days after a Nevada judge extended a ban on Kalshi operating in that state for another two weeks.
What the Court Ultimately Decided
The Third Circuit upheld a preliminary injunction first granted by a district court in April 2025. That injunction had barred New Jersey from pursuing enforcement while the case proceeded. New Jersey sent Kalshi a cease-and-desist letter in 2025, arguing its sports contracts constituted unauthorized wagering under state law. Kalshi sued, asserting its products are federally regulated derivatives listed on a CFTC-licensed designated contract market.
Writing for the majority, Circuit Judge David Porter concluded that the Commodity Exchange Act preempts state laws that directly interfere with swaps traded on CFTC-licensed designated contract markets.
Kalshi’s sports event contracts, the majority found, are swaps within the meaning of the Act. “Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction,” Porter wrote.
The court framed the core question narrowly. New Jersey had argued broadly that it has the right to regulate all sports gambling within its borders. The majority said that framing was too wide. The relevant question is whether a state can regulate trading on a federally supervised exchange. On that narrower question, the court sided with Kalshi.
The Dissent From a Circuit Judge
Circuit Judge Jane Roth dissented sharply. She wrote that Kalshi’s offerings “are virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel.” She argued that classifying Kalshi’s products as swaps through CFTC registration is an act of legal alchemy that obscures what is, in practice, sports gambling. Roth concluded that the Commodity Exchange Act does not bar state enforcement under these circumstances.
The dissent reflects the position most state regulators have taken and gives states a legal framework to continue fighting at both the appellate and Supreme Court levels.
The Broader Legal Map d Future Impact
The Third Circuit ruling now binds lower courts across New Jersey, Pennsylvania, and Delaware. But it does not resolve the national picture. Courts in Nevada, Maryland, and Ohio have all ruled against Kalshi in earlier proceedings. A federal court in Maryland reached the opposite conclusion on federal preemption, and that case is now on appeal to the Fourth Circuit. If the Fourth Circuit sides with Maryland, a direct circuit split would exist, which is precisely the kind of legal conflict that sends cases to the Supreme Court.
A separate Ninth Circuit hearing is scheduled for later this month involving multiple prediction market platforms. The CFTC has filed an amicus brief in that case and has taken the position that its exclusive jurisdiction over designated contract markets prevents state enforcement.
CFTC Chair Michael Selig reiterated that position Monday at a Vanderbilt University event, saying it was essential that the commission defend its exclusive jurisdiction. The Trump administration has also filed suits against Arizona, Illinois, and Connecticut to block state enforcement of gambling laws against prediction markets, adding a new federal front to the litigation map.
What It Means for the Gambling Industry
Kalshi CEO Tarek Mansour called the ruling a big win for the industry and millions of users. The decision strengthens Kalshi’s legal position at a moment of maximum pressure.
The company is currently operating under a ban in Nevada, faces criminal charges in Arizona, and has active litigation in multiple additional states. A $22 billion valuation and a $1.5 billion annual revenue run rate are riding on the outcome of this legal question.
For traditional sportsbook operators, the ruling is unwelcome news. DraftKings stock remains down roughly 37% year-to-date as prediction markets have taken market share. If the Supreme Court ultimately affirms federal preemption, the licensed state-by-state sports betting framework built since 2018 faces a structural challenge it was never designed to handle.
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