US Appeals Court Rules in Favor of CFTC and Kalshi on NJ Sports Markets
On Monday, April 6, the federally regulated exchange platform Kalshi and the Commodity Futures Trading Commission (CFTC) scored a victory in New Jersey.
A US federal appeals court ruling found that New Jersey gaming regulators cannot prevent people in the Garden State from using the Kalshi prediction market to wager on sporting event outcomes.
The hearing took place at the 3rd U.S. Circuit Court of Appeals in Philadelphia, Pa., and ruled 2-1 in favor of Kalshi and the CFTC. The ruling stated that the CFTC has complete jurisdiction over contracts for sports events that Kalshi offers for trading on its exchange platform.
CFTC, Kalshi score key victory as other legal battles loom
It was the first ruling from a federal appeals court on the emerging issue of whether state gaming regulators should regulate the activities of Designated Contract Market (DCM) exchanges.
In a statement, CFTC spokesperson Brooke Nethercott said, "Congress gave the CFTC exclusive jurisdiction over trades on DCMs, and this decision affirms the goals of Congress." On April 2, the CFTC filed similar lawsuits in Illinois, Arizona, and Connecticut.
Recently, a judge in Nevada stated he would issue an injunction preventing Kalshi from offering event-contract trades that do not comply with the state’s sports gambling laws. A similar injunction is on hold and pending appeal in Massachusetts.
Growing calls for Kalshi bans
Some states have sought to either regulate or outright ban the actions of DCM exchanges, such as Kalshi. This is despite the Commodity Exchange Act stating that the CFTC has regulatory jurisdiction over event contracts.
The states have argued that DCMs are operating without state-issued gaming licenses, in violation of state gaming laws. New Jersey, Illinois, Arizona, and Connecticut are all states where online sports gambling is legal.
After the recent New Jersey ruling, Kalshi CEO Tarek Mansour posted on X, "This is a big win for the industry and millions of users."
Prediction markets vs. licensed sportsbooks
The one dissenting judge in the New Jersey case was U.S. Circuit Judge Jane Richards Roth. She stated that Kashi is not only promoting gambling, but also offers nearly the same sports betting products as state-licensed online sportsbooks.
While Kalshi and the CFTC scored a win in New Jersey, the issue is not over. State Attorney General Jennifer Davenport stated that the Attorney General's office will look into other options, as the ruling allows DCMs to permit sports gambling without having to abide by the New Jersey sports gambling rules that licensed online sportsbooks do. Davenport also has the right to ask for a rehearing of the case in the 3rd Circuit.
New Jersey gaming revenue increased in March across regulated sportsbooks, casinos, and DFS sites, and the state is looking to add a stealth tax to World Cup bets this summer.
