Court backs CFTC over prediction markets

A federal appeals court has now said, clearly, that New Jersey cannot treat Kalshi’s sports event contracts like ordinary sports bets. In a 2–1 decision on April 6, the Third Circuit held that these contracts are traded on a CFTC-licensed exchange and therefore fall under federal commodities law, not state gaming law. The ruling kept in place a lower-court injunction that blocks New Jersey from shutting Kalshi down while the case continues (cnbc.com, courthousenews.com, hklaw.com). That sounds technical. It is also the whole fight. Kalshi does not call itself a sportsbook. It calls itself a prediction market, where users buy and sell contracts tied to yes-or-no outcomes. If a contract resolves true, it pays out a dollar. If it resolves false, it pays zero. The company has argued for months that these are swaps traded on a designated contract market, a status the CFTC granted Kalshi in November 2020. New Jersey argued that this was sports wagering with a derivatives wrapper around it (cftc.gov, cnbc.com). The case began after New Jersey sent Kalshi a cease-and-desist letter saying the company was offering unlawful sports wagering in the state. The state had a specific reason to care. New Jersey law bars betting on New Jersey college teams and on collegiate events held in the state, and Kalshi’s market structure did not respect those local carveouts. Kalshi sued instead of complying, and a federal district judge granted a preliminary injunction in 2025. Monday’s appeals ruling affirmed that early win and, more importantly, explained why the judges thought federal law likely overrides state law here (nj.gov, hklaw.com, courthousenews.com). The court’s reasoning turned on a dry phrase with large consequences: exclusive jurisdiction. Judge David Porter wrote that Kalshi’s sports contracts are swaps under the Commodity Exchange Act because they are tied to events with potential financial, economic, or commercial consequences. Once the contracts sit inside that federal framework and trade on a licensed exchange, the CFTC controls the field. New Jersey cannot step in just because the product looks and feels like gambling. The dissent said that was exactly what it was. The majority said resemblance is not the test (cnbc.com, courthousenews.com). That distinction matters beyond New Jersey because states across the country have been trying to pull prediction markets back under gambling law. Last week, the CFTC itself sued Arizona, Connecticut, and Illinois to stop them from taking similar action against federally registered exchanges. The agency said Congress gave it sole authority over trading on designated contract markets. This is not just Kalshi freelancing anymore. It is the federal government adopting Kalshi’s theory as its own (cftc.gov, cnbc.com). The awkward part is that the legal clarity arrives before the regulatory clarity. The Third Circuit only decided that Kalshi is likely to win, not that every sports event contract is forever safe. At the same time, the CFTC has opened a broad rulemaking on prediction markets and asked for public comment on which event contracts may be contrary to the public interest. Comments are due April 30, 2026. So the market has won the jurisdiction fight in one federal circuit while the regulator is still deciding what this category should become (federalregister.gov, hklaw.com). For now, the practical result is simple. A contract on a basketball game can trade on a federally regulated exchange even in a state that says a nearly identical wager would be illegal at a sportsbook. The price can move before tipoff. Traders can buy and sell out before the game ends. And the line that decides who regulates it is no longer the subject matter of the bet. It is the venue where the contract trades (courthousenews.com, cftc.gov).