A three-judge panel of the U.S. Court of Appeals for the Third Circuit ruled 2-1 in favor of KalshiEX LLC (Kalshi), a CFTC-regulated prediction market platform. The court upheld a preliminary injunction preventing New Jersey’s Division of Gaming Enforcement from enforcing state gambling laws against Kalshi’s sports-related event contracts.
New Jersey sent Kalshi a cease-and-desist letter in 2025, claiming its sports event contracts e.g., bets on game outcomes violated the state’s constitution and gambling laws, particularly regarding collegiate sports. Kalshi sued in federal district court, arguing that its contracts are financial instruments under federal oversight.
Kalshi’s sports-related event contracts qualify as swaps under the Commodity Exchange Act (CEA). A swap involves payments dependent on the occurrence or extent of an event associated with potential financial, economic, or commercial consequences. These contracts are traded on a CFTC-licensed Designated Contract Market (DCM), giving the CFTC exclusive jurisdiction.
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The CEA preempts conflicting state laws. Allowing New Jersey to enforce its gambling rules would obstruct the federal regulatory scheme for swaps on DCMs. The preliminary injunction stands, so New Jersey cannot block Kalshi from offering these contracts in the state while the underlying case proceeds. This is the first federal appeals court decision addressing state vs. federal regulation of prediction market event contracts.
One judge dissented, arguing that Kalshi’s offerings are virtually indistinguishable from traditional sports betting and gambling products, which states have authority to regulate. The majority rejected this framing, emphasizing the narrow focus on federally regulated swaps rather than broad gambling.
This decision comes amid multiple state challenges to prediction markets including from Kalshi and competitors like Polymarket. The CFTC has recently sued states like Arizona, Connecticut, and Illinois, asserting its exclusive authority. The ruling aligns with the CFTC’s position and could set a significant precedent for how event contracts on sports, elections, and other outcomes are treated nationally—favoring federal oversight over fragmented state gambling enforcement.
Kalshi operates under CFTC rules, including self-certification of contracts; presumptively approved unless the agency objects on public interest grounds. The Trump-era CFTC has been described as relatively supportive of these markets. This is a preliminary ruling on likelihood of success for the injunction, not a final merits decision.
Further appeals or litigation in other states could refine or challenge the implications. New Jersey and similar regulators may continue fighting on different grounds or seek Supreme Court review down the line.
The April 6, 2026, Third Circuit ruling (2-1) in favor of Kalshi has several immediate and potential longer-term impacts across legal, regulatory, industry, and consumer dimensions. This is the first federal appeals court decision addressing whether CFTC-regulated prediction market event contracts are shielded from state gambling laws via federal preemption.
The preliminary injunction remains in place, blocking the state’s Division of Gaming Enforcement from enforcing gambling laws or its constitution’s collegiate sports betting ban against Kalshi’s sports event contracts. Kalshi users in NJ face no state-level shutdown risk for these products while the underlying case proceeds.
This provides Kalshi and potentially similar CFTC-registered platforms breathing room in the Third Circuit states (NJ, PA, DE). It halts one front in the broader state enforcement wave that began with cease-and-desist letters. The majority held that sports event contracts qualify as swaps under the Commodity Exchange Act (CEA) because payouts depend on events “associated with” potential financial, economic, or commercial consequences.
Trading occurs on a CFTC-licensed Designated Contract Market (DCM), triggering field and conflict preemption: State laws cannot interfere with this federal scheme. This strengthens the CFTC’s position in its recent lawsuits against states like Arizona, Connecticut, and Illinois.
Creates momentum but not nationwide resolution: It binds lower courts in the Third Circuit but is not binding elsewhere. Conflicting district court rulings exist. A circuit split potentially with the Fourth or Ninth Circuits could accelerate Supreme Court review, which many analysts view as likely to ultimately decide the issue.
New Jersey is evaluating options including possible further appeal. The dissent argued the products are virtually indistinguishable from traditional sports betting, which states have long regulated. The logic could extend beyond sports to other prediction markets, reinforcing federal oversight over state gambling enforcement for CFTC-registered platforms.
Kalshi CEO Tarek Mansour called it a significant victory highlighting greater transparency and fairness compared to traditional betting. Licensed operators in states like NJ must comply with strict gaming rules, taxes, age restrictions, and integrity measures. Prediction markets could offer similar sports exposure with lighter oversight, potentially creating competitive tension or prompting calls for a level playing field.
Mixed results for states: Some view it as undermining state authority, consumer protections, and tax revenue from regulated gambling. Others see it as clarifying a federal carve-out for financial instruments. NJ residents and potentially in aligned jurisdictions gain continued access to event contracts on sports, which proponents argue provide more transparent, exchange-traded pricing than some traditional betting.
The ruling accelerates the national debate on whether prediction markets are financial tools (CFTC) or gambling (states). With ongoing litigation, CFTC amicus support, and possible circuit splits, a Supreme Court decision could provide clarity within 1–2 years. In the interim, platforms may expand cautiously in favorable jurisdictions, while states continue enforcement or legislative pushes.
This tilts the balance toward federal preemption for CFTC-registered event contracts on sports but leaves the industry in a transitional, litigious phase rather than offering full nationwide certainty.