A federal appeals court upheld a lower court ruling that allowed Kalshi to continue offer contracts to bet on college sports in New Jersey, finding the state’s ban on collegiate sports betting is preempted by federal law governing some securities.
The U.S. 3rd Circuit Court of Appeals ruled the prediction market’s sports wagering contracts are futures trading contracts that can be regulated only by the Commodity Futures Trading Commission and not state law that governs who can run sports books and which athletic events can be wagered on.
“The federal government has regulated the derivatives market for over a century,” Judge David Porter wrote for a divided, three-judge panel. “And it delegated that regulation to the CFTC, which has expertise in swaps like event contracts.”
Kalshi and Polymarket, another prediction market, have faced suits alleging they have violated sports betting laws in states across the country. The platforms allow users to bet on the outcome of various events, from elections to earthquakes to the price of oil.
Everywhere, the firms have argued their sports events contracts are swaps, a type of derivative contract that bets whether something with economic consequence will happen, often on a given date. The Commodity Exchange Act gives the Commodity Futures Trading Commission sole authority over swaps.
“Free markets work. We should keep them that way. This is a big win for the industry and millions of users,” Tarek Mansour, Kalshi’s CEO, said in a statement on Twitter.
Judge Jane Richards Roth dissented from the majority’s decision, arguing Kalshi, in an act of “alchemy” and “performative sleight”, merely branded sports bets as futures trades to escape regulation by states.
She compared Kalshi contract offerings for an NFL game between the Carolina Panthers and the Tampa Bay Buccaneers to bets available with state-regulated sports books.
“I could have bet on the winner (game outcome). I could have also bet on whether I believed Tampa Bay would win by more than 2.5 points (point spread), whether the two teams would collectively score 45 or more points (game props), or whether former Tampa Bay wide receiver Mike Evans would score a touchdown (player props),” Roth wrote. “These offerings are virtually indistinguishable from the betting products available on online sportsbooks.”
All three judges were appointed by Republican presidents.
The federal government has pushed to limit states’ ability to regulate prediction markets and earlier this month sued Arizona, Connecticut, and Illinois, alleging the states’ attemptts to enforce their gambling laws on prediction markets edged into federal regulatory authority.
The platforms have faced scrutiny over insider trading claims that include multiple exceedingly well-timed trades that predicted Trump administration actions, including bets on the capture of Venezuelan President Nicholas Maduro, the price of oil minutes before President Trump announced the United States would delay attacks on Iranian energy infrastructure, and pausing tariffs.
Kalshi last month said it would seek to combat insider trading by barring politicians from betting on their own campaigns and preventing athletes from betting in their markets.
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