Federal court hands Kalshi its biggest legal win yet
Table of contents
- A federal appeals court has ruled 2-1 that the CFTC holds exclusive jurisdiction over Kalshi’s sports event contracts in New Jersey, marking the first circuit-level decision on prediction market regulation.
- The ruling arrived days after a Nevada judge granted a preliminary injunction against the platform, extending a ban on sports, election and entertainment contracts first imposed by a temporary restraining order on March 20.
- The CFTC has separately filed suit against Arizona, Connecticut and Illinois over those states’ enforcement actions against Kalshi.
Kalshi has secured a significant legal victory in its dispute with New Jersey, after a federal appeals court ruled that state gaming regulators cannot ban the platform’s sports event contracts.
The decision, delivered by a 2-1 majority on the US Court of Appeals for the Third Circuit on April 6, is the first ruling of its kind from a federal circuit court and carries far-reaching consequences for the prediction markets sector.
Federal preemption
The appellate court ruled that Kalshi’s sports event contracts fall under the purview of the Commodity Futures Trading Commission and the Commodity Exchange Act, allowing the platform to operate in New Jersey without a sports betting license.
The ruling affirmed a lower-court preliminary injunction that had blocked the New Jersey Division of Gaming Enforcement from applying state gambling law to the platform.
Writing for the majority, US Circuit Judge David Porter found that Kalshi had met the burden for preliminary injunctive relief and demonstrated a reasonable chance of success in arguing that the Commodity Exchange Act preempts otherwise applicable state law. Both field and conflict preemption were found to apply.
Porter wrote that New Jersey had framed the issue too broadly, as the regulation of all sports gambling, rather than narrowly, as the regulation of trading on federally designated contract markets. The Commodity Exchange Act, he concluded, preempts state laws that directly interfere with swaps traded on designated contract markets.
Tarek Mansour, CEO of Kalshi, said in a social media post on X:
“Free markets work. We should keep them that way. This is a big win for the industry and millions of users.”
The case originated after New Jersey sent Kalshi a cease and desist letter in 2025, arguing that its sports-related event contracts violated state gambling laws, including a ban on wagering on collegiate sports.
Kalshi sued the state, contending its contracts qualify as “swaps” under the Commodity Exchange Act and therefore fall under exclusive CFTC oversight.
Nevada dealt a blow
The Third Circuit win arrived days after a contrasting outcome in Nevada.
Judge Jason Woodbury of the First Judicial District Court in Carson City said at the close of a hearing that he would issue the preliminary injunction sought by the Nevada Gaming Control Board, extending an earlier temporary restraining order through April 17 to allow time to finalise the terms of a longer term injunction. The order barred Kalshi from offering sports, election and entertainment-related contracts in the state.
Woodbury said buying a contract on a baseball game on Kalshi was “indistinguishable” from placing a bet on a state gaming platform, and found it constitutes a gaming activity prohibited for any non-licensee.
As reported, the court has ordered Kalshi to implement geofencing controls by May 4 to block Nevada users from accessing the platform, a requirement that is notable given the company had argued in multiple proceedings that such measures would be prohibitively expensive.
Nevada Gaming Control Board Chairman Mike Dreitzer said:
“We are very pleased with today’s ruling and will continue to vigorously enforce Nevada law to safeguard gaming in our state.”
Mansour said in response to the Nevada decision:
“We are disappointed in the court’s decision, but we will continue to work with regulators to find a path forward.”
Both the Nevada and New Jersey cases are now scheduled to be heard before the Ninth Circuit Court of Appeals in consolidated appeals on April 16 in San Francisco. Nevada also has ongoing cases against Robinhood and Crypto.com set for the same date.
A widening legal war
The two rulings are the latest flashpoints in an escalating dispute between prediction market operators, state regulators and federal authorities.
Over a dozen lawsuits and cease and desist actions were pending across the country as of mid-March 2026, spanning federal and state court cases, civil and criminal proceedings, class action suits and tribal challenges.
The CFTC filed lawsuits against Arizona, Connecticut and Illinois, challenging those states’ specific enforcement actions against Kalshi as a CFTC-registered designated contract market, and arguing that Congress granted the commission clear and longstanding exclusive jurisdiction to regulate event contracts under the Commodity Exchange Act.
Former CFTC general counsel Rob Schwartz described the actions as “absolutely unprecedented.”
Arizona became the first US state to pursue criminal charges, with Attorney General Kris Mayes filing 20 misdemeanor counts against Kalshi executives in March. Washington Attorney General Nick Brown filed a civil lawsuit against the company on March 27, alleging violations of the state’s Gambling Act, Consumer Protection Act and Recovery of Money Lost at Gambling Act.
Under CFTC Chairman Michael Selig, the commission has also issued an advanced notice of proposed rulemaking for prediction markets, with a public comment period running through April 30, 2026.
No consensus between courts
The dissenting opinion in the Third Circuit case illustrated the argument that has prevailed in Nevada, Massachusetts and Ohio.
US Circuit Judge Jane Richards Roth argued that Kalshi’s offerings were virtually indistinguishable from those of traditional online sportsbooks such as DraftKings and FanDuel. She characterised the platform’s registration as a designated contract market as an “act of alchemy” that, in her view, attempted to transform sports gambling into federally regulated futures trading.
New Jersey Attorney General Jennifer Davenport said her office is reviewing its options, warning the ruling will allow certain companies to offer sports gambling in the state without following the regulatory framework applied to all other operators.
Analysts have noted that cases focused on congressional intent, rather than the definition of swaps, could produce adverse outcomes for Kalshi in other circuits, making eventual Supreme Court review increasingly likely. With the Ninth Circuit consolidated appeals set for April 16 and cases active across more than a dozen states, the jurisdictional question at the heart of the prediction markets debate remains unresolved.
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