Third Circuit Appears to Side with Kalshi in New Jersey
The Third Circuit Court of Appeals heard arguments in the battle between Kalshi and New Jersey this week.
The case tests whether prediction markets fall under state gambling laws or federal commodities regulation. From the outset, at least two judges appeared skeptical of New Jersey's position, questioning whether sports event contracts can be excluded from the statutory definition of swaps.
Kalshi has already prevailed in an earlier stage of litigation against New Jersey regulators and recently launched new sports contracts on its platform. The state argued contracts on sports betting are not swaps for purposes of federal law, but Judge Michael Chagares reminded that the definition of swaps is "pretty broad."
Judge David J. Porter questioned Kalshi's attorney to provide some examples of sports wagers that would not qualify, putting the challenge of drawing a clear line.
New Jersey emphasized the significance of its sports gambling regulation through the presumptions against preemption. The judges continually returned, however, to the language of the Commodity Exchange Act, which grants to the Commodity Futures Trading Commission "exclusive jurisdiction" over designated contract markets.
Kalshi argued that if New Jersey was going to be successful, then the state merely had to categorize global futures markets as gambling.
Kalshi also advanced conflict preemption arguments, pointing to the impossibility of complying with New Jersey's rule requiring in-state bettors on a federally regulated platform. The judges probed both sides with hypotheticals, acknowledging the state's concerns about being excluded from sports betting oversight but also recognizing the sweeping authority Congress gave the CFTC.
Market growth amid legal battles
While the legal challenges continue, Kalshi has expanded as the country's largest sports prediction market. Partnered with Robinhood, the platform reported more than $400 million in trades during the first week of the NFL season, with nearly $200 million processed on Sunday alone. The figures mark Kalshi's busiest period since the 2024 presidential election.
Kalshi marketed its NFL products as a legal alternative to the best sports betting sites, emphasizing competitive pricing and early cashout features. The strong initial volume suggests significant customer interest, though some users have voiced concerns online about higher costs and limited options compared to traditional betting operators.
Despite its momentum, the company faces risks from pending court rulings and regulatory scrutiny. A loss in any of its cases could force Kalshi to restrict access on tribal lands or across states, raising operational costs.
The CFTC has also been urged to review the role of Brian Quintenz, a former commissioner accused by rivals of leveraging sensitive information to benefit Kalshi. His pending renomination under President Trump has stalled amid the controversy.
For now, Kalshi's trading surge shows the growing demand for sports prediction markets. Yet the ultimate outcome depends on how courts and regulators resolve the conflict between state gambling laws and federal commodities oversight.
