Court Rules Prediction Markets Fall Under Federal, Not State, Authority

Federal Court Siding with Kalshi Over State Regulators

In a landmark ruling that could reshape the landscape of sports wagering in the United States, a federal appeals court has determined that New Jersey cannot enforce its gambling laws against prediction markets. The decision, handed down by the U.S. Court of Appeals for the 3rd Circuit, establishes that the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over these platforms.

The case centers on Kalshi, a CFTC-registered designated contract market (DCM). Last year, Kalshi successfully sought a preliminary injunction to stop the New Jersey Division of Gaming Enforcement from shutting down its sports-related event contracts. The 2-1 appellate decision on April 6, 2026, upholds that injunction, effectively preempting state-level bans and constitutional prohibitions on certain types of betting.

"Swaps" vs. Gambling: A Narrow Legal Distinction

The crux of the legal battle lies in how these financial instruments are defined. Under the Commodity Exchange Act, as amended by the 2010 Dodd-Frank Act, the CFTC manages "swaps"—a category that includes event contracts.

Writing for the majority, Circuit Judge David Porter argued that federal law "preempts state laws that directly interfere with swaps traded on DCMs." Because Kalshi is a licensed DCM, its sports contracts are classified as federal commodities rather than traditional gambling.

Chief Judge Michael Chagares joined Porter in the majority, asserting that New Jersey’s attempt to regulate the platform was an overreach. The court found that federal law's broad definition of swaps encompasses event contracts, even those involving sports outcomes.

Dissenting Voice: "Performative Sleight of Hand"

The ruling was not without sharp criticism. Circuit Judge Jane Roth issued a stinging dissent, arguing that Kalshi’s products are "virtually indistinguishable" from those offered by sportsbooks like DraftKings or FanDuel.

Roth detailed her own review of the platform, noting that users could bet on NFL game winners, point spreads, and even specific player performances (player props). She accused the majority of falling for a "performative sleight" of hand.

"The Majority agrees... that Kalshi’s registration as a DCM and branding of its wagers as sports-event contracts are acts of alchemy that transmute its products from sports gambling to futures trading," Roth wrote.

A Growing National Conflict

This ruling marks the first time a federal appeals court has weighed in on the jurisdiction of prediction markets, but the legal landscape remains fractured. While Kalshi has seen victories in New Jersey and Tennessee, it has faced setbacks in Maryland and Nevada.

The CFTC is actively defending its turf. Last week, the agency filed lawsuits against Arizona, Connecticut, and Illinois to block their attempts at regulation. "The CFTC will continue to safeguard its exclusive regulatory authority," stated CFTC Chairman Michael Selig.

Congress Eyes Intervention

The debate has now reached the halls of the U.S. Capitol. On March 23, Senators Adam Schiff (D-Calif.) and John Curtis (R-Utah) introduced bipartisan legislation aimed at closing what they describe as a "backdoor" for unregulated gambling.

"Sports prediction contracts are sports bets—just with a different name," Schiff remarked, arguing that these markets bypass state consumer protections and tribal sovereignty. If passed, the bill would explicitly prohibit CFTC-registered entities from listing contracts that mimic sports betting or casino games.

As the CFTC opens a public comment period on how to handle gaming-related contracts, the 3rd Circuit's ruling remains a significant—though potentially precarious—victory for the prediction market industry. For now, the federal "swap" definition serves as a shield against the patchwork of state gambling laws across the country.