Kalshi scored a win in the first ruling among a sweep of lawsuits from US states seeking to restrict prediction markets, as a federal appeals court rejected New Jersey’s attempts to ban sports bets on the platform.
In a 2-1 decision on Monday, a panel of judges on the Philadelphia-based 3rd US Circuit Court of Appeals ruled that the US Commodity Futures Trading Commission, or CFTC, has exclusive authority over prediction markets like Kalshi and Polymarket – not state regulators.
“This is a big win for the industry and millions of users,” Kalshi CEO Tarek Mansour wrote in a Monday morning post on X cheering the decision.
States have argued that the new crop of prediction markets – which allow users to bet on everything from sports and pop culture to politics – are the same as online gambling platforms, which require state licenses and ban users under 21.
Arizona, Connecticut and Illinois are currently entangled in a similar legal battle to New Jersey’s with the federal government. Last week, the CFTC sued the three states, challenging their attempts to regulate prediction markets.
New Jersey last year sent Kalshi a cease-and-desist letter for operating sports-related “contracts” — the term prediction markets use to describe how transactions are made — that it said violated state gambling laws. Kalshi responded by suing the state, arguing that its event contracts are “swaps” – a type of derivative contract regulated by the CFTC – and not bets.
In Monday’s court decision, US Circuit Judge David Porter wrote that Kalshi’s sports-related contracts “are swaps” in fact, so they are under the exclusive jurisdiction of the CFTC.
“Congress gave the CFTC exclusive jurisdiction over trades on DCMs, and this decision affirms the goals of Congress,” a commission spokesperson told The Post.
Christopher Gerlacher, a prediction market expert at Prediction News, said Kalshi was well-positioned for a win in the New Jersey case – though he added that it could face losses if later cases focus on congressional intent instead of the definition of “swaps.”
“Cases that focus on congressional intent instead of the definition of swaps could lead to losses in other Circuit Courts,” Gerlacher told The Post. “Today’s Third Circuit ruling has made an eventual Supreme Court case more likely.”
US Circuit Judge Jane Richards Roth dissented from Monday’s ruling, arguing that Kalshi’s “offerings were virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel.”
The ruling will allow “certain companies to offer sports gambling in our States without following the careful gaming rules that everyone else follows,” New Jersey Attorney General Jennifer Davenport told The Post in a statement.
She added that the state is “evaluating all options in our case,” which could potentially include asking the 3rd Circuit to rehear the case.
New Jersey can petition for a rehearing by the full court, though it’s rare that a court will agree to such a session, according to Jake Preiserowicz, regulatory expert at McDermott Will & Schulte.
If there is an adverse ruling by another circuit court, then it would become more likely for the Supreme Court to take up the issue, Preiserowicz added.
Prediction markets like Kalshi and Polymarket are facing heightened scrutiny after anonymous traders recently made millions with shockingly accurate wagers related to US-Israeli strikes on Iran and the ouster of Venezuelan dictator Nicolás Maduro in January.
Kalshi and Polymarket last month added new anti-insider trading rules to their platforms amid a flurry of legislative proposals seeking to ban officials from using the prediction markets, and to forbid bets related to terrorism and war altogether.
Sens. John Curtis (R-Utah) and Adam Schiff (D-Calif.) have pushed legislation to hand over control of prediction markets to state regulators, while California Gov. Gavin Newsom has banned state-appointed officials with insider information from using the markets.
Rep. Seth Moulton (D-Mass.) also announced a ban on prediction markets among his office staffers, and last week blasted a Polymarket contract linked to the rescue mission of a US service member whose plane was shot down over Iran.
“They could be your neighbor, a friend, a family member. And people are betting on whether or not they’ll be saved,” Moulton wrote in a post on X. “This is DISGUSTING.”
In a response to Moulton’s criticism, Polymarket wrote: “We took this market down immediately as it does not meet our integrity standards. It should not have been posted, and we are investigating how this slipped through our internal safeguards.”
Kalshi – a US-based prediction market – has said it “doesn’t allow markets directly tied to death” on its platform, after suspected insiders made bets worth $54 million over former Iranian Supreme Leader Ayatollah Ali Khamenei’s ouster.
The company is currently being sued for refusing to pay out the bets on a market linked to Khamenei’s ouster after he was killed in US-Israeli air strikes at the start of the war on Feb. 28.
Polymarket’s main trading platform is located offshore and the company does not technically allow American bettors to use the site, so it is able to avoid CFTC regulations.
But there are numerous online guides that detail how US users can skirt blockages using a VPN, raising questions around how the rules are enforced.
Dems have also criticized the Trump family’s ties to prediction markets, as Donald Trump Jr. is an adviser to both Kalshi and Polymarket.
