Federal Appeals Court Affirms CFTC's Exclusive Authority Over Kalshi's Sports Event Contracts

A federal appeals court has determined that New Jersey cannot enforce its gambling laws against Kalshi, a prediction market platform, regarding its sports-related event contracts. The U.S. Court of Appeals for the Third Circuit ruled 2-1 that the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over these contracts, as they are classified as swaps under the Commodity Exchange Act.

The case originated when New Jersey's Division of Gaming Enforcement issued a cease-and-desist letter to Kalshi, alleging that its sports event contracts violated state gambling laws. Kalshi contested this, asserting that its contracts are federally regulated financial instruments. The district court initially sided with Kalshi, granting a preliminary injunction against the state's enforcement actions, a decision now upheld by the appeals court.

In the majority opinion, Judge David Porter stated that the Commodity Exchange Act preempts state law in this context, granting the CFTC exclusive jurisdiction over swaps traded on designated contract markets like Kalshi. However, Judge Jane Richards Roth dissented, arguing that Kalshi's offerings are virtually indistinguishable from traditional sports betting products and should be subject to state regulation.

This ruling marks the first time a federal appeals court has addressed the jurisdictional boundaries between state gambling laws and federally regulated prediction markets. The decision may influence ongoing legal debates in other states regarding the regulation of similar platforms.