In another setback for state efforts to regulate prediction markets, a federal appeals court ruled Monday that New Jersey gaming regulators cannot enforce state law against market leader Kalshi based on the argument that its offerings constitute sports betting.
The ruling follows lawsuits filed last week by the Commodity Futures Trading Commission against three other states that also are trying to regulate prediction markets. The CFTC claims the federal government has exclusive regulatory rights, arguing that the business is tantamount to selling stock or commodity futures.
Kalshi sued New Jersey after regulators sent the company a cease-and-desist letter in March 2025. Last April, a district court issued a preliminary injunction for Kalshi and barred any state enforcement actions, which New Jersey regulators appealed.
“We profoundly disagree with today’s decision allowing certain companies to offer sports gambling in our States without following the careful gaming rules that everyone else follows,” New Jersey Attorney General Jennifer Davenport said in a statement. “We’ll continue standing with our colleagues fighting off similar challenges in their States, and we’re evaluating all options in our case.”
Monday’s ruling marks a first at the federal appellate level in the escalating legal battle between states and prediction market companies over regulation.
Two of the three judges sided with Kalshi, writing that sports event contracts are financial instruments that come under CFTC jurisdiction.
The dissenter, Judge Jane Richards Roth, wrote that Kalshi’s sports event contracts are “virtually indistinguishable” from sports bets. She added: “Because Kalshi is facilitating gambling, it can be subjected to state regulation.”
CFTC Chairman Michael Selig lauded the appeals court ruling in a social media post.
Tarek Mansour, one of Kalshi’s co-founders, wrote on X: “This is a big win for the industry and millions of users.”
Members of Congress and various state legislatures have stepped up efforts to impose restrictions on the booming prediction market industry. President Donald Trump’s son Donald Jr. serves as an adviser to both Kalshi and its rival Polymarket.
Arizona, Connecticut and Illinois — the states named in the CFTC litigation — have issued cease-and-desist letters to prediction market companies in the past year. In a first, Arizona filed criminal charges against Kalshi in March and accused the company of running an illegal gambling operation.
