TLDR
- A 2-1 decision from the US Third Circuit Court of Appeals sided with Kalshi, preventing New Jersey from applying state gambling regulations to the prediction market operator
- In her dissenting opinion, Judge Roth contended that the CFTC was never granted authority by Congress to supersede state gambling laws through the 2010 Commodity Exchange Act amendments
- Gaming industry stakeholders are divided on whether this decision could jeopardize state-regulated betting markets nationwide
- The decision represents a preliminary injunction based on “reasonable likelihood of success” rather than a final judgment
- Observers expect the case to reach the Supreme Court, with New Jersey granted 14 days to petition for en banc review
In a significant development for the prediction markets industry, a federal appellate court has ruled in favor of Kalshi against New Jersey’s attempt to enforce state-level gambling regulations.
The US Third Circuit Court of Appeals issued a 2-1 decision maintaining a preliminary injunction that prevents New Jersey authorities from applying the state’s gambling statutes to Kalshi’s operations.
This represents the most substantial legal victory to date for the platform in its continuing dispute with state regulatory bodies.
Dissenting Opinion Questions Federal Authority Over State Gambling Rights
The decision, however, was far from unanimous. Judge Jane Richards Roth authored a forceful dissent challenging the notion that Congress intended to grant the Commodity Futures Trading Commission power to override state authority in gambling regulation.
Judge Roth referenced a specific dialogue from the congressional record between Senators Dianne Feinstein and Blanche Lincoln. In that discussion, Lincoln indicated congressional intent for the CFTC to prohibit contracts deemed “contrary to the public interest” that primarily facilitate wagering activity.
Lincoln explicitly cited examples including Super Bowl bets, Kentucky Derby wagers, and Masters Golf Tournament contracts as illustrations of offerings that “would not serve any real commercial purpose.”
In her dissent, Roth further contended that Kalshi’s expansive interpretation of swap agreements could encompass “virtually every kind of wager,” even extending to a hypothetical bet on a local ping pong competition. She maintained that Congress could not have contemplated such an extensive application.
The judge highlighted Kalshi’s social media presence, noting that the company’s Instagram account “routinely refer to its products as sports betting.” According to Roth, “basic abductive reasoning” indicates the platform’s offerings constitute gambling.
The dissenting opinion immediately sparked responses from industry observers. Sporttrade founder Alex Kane challenged the concerns on X, asserting that state-licensed betting operators and federally regulated exchanges can operate simultaneously without conflict.
Kane maintained that the CFTC’s lack of enforcement actions against state-regulated sportsbooks demonstrates the agency has no intention of usurping state gambling oversight.
Industry Observers Caution Against Premature Conclusions
Responsible gambling advocate Jessica Welman offered a contrasting perspective, revealing that numerous legal professionals she consulted view the potential elimination of state-regulated gambling as “a very real possibility” based on this case’s trajectory.
Gaming industry analyst Steve Ruddock emphasized that while the CFTC currently isn’t attempting to claim jurisdiction over state sportsbooks, he qualified this with “yet,” noting that critics frequently omit this crucial caveat.
Kane countered by proposing that federal regulation might prove superior to what he characterized as the states’ “incredibly anti-consumer and anti-innovation regulatory regime.”
Legal professionals have emphasized the preliminary nature of this ruling. Holland and Knight Law clarified that the court merely established a “reasonable likelihood of success” for Kalshi rather than rendering a definitive judgment on the underlying issues.
Gaming attorney Daniel Wallach explained on X that New Jersey has a 14-day window to petition for an en banc hearing before the complete Third Circuit panel. Though such requests are infrequently approved, the divided decision may improve the state’s prospects.
In his April 7 newsletter, Ruddock characterized the ruling as “not a destination” but rather “just another stop on the way to the Supreme Court.”
He cautioned against overinterpreting individual rulings, noting that New Jersey maintained a 14-2 record prior to this setback and drawing parallels to the state’s sports betting litigation, where it suffered defeats in lower courts before ultimately prevailing at the Supreme Court.
New Jersey faces a late April deadline to determine whether to pursue en banc review of the Third Circuit’s split decision.
