Federal Appeals Court Backs Kalshi: CFTC Wins Jurisdiction Over State Gambling Regulators

A US appellate court has delivered a major victory for prediction market platform Kalshi, ruling that federal crypto and derivatives regulators—not state authorities—hold exclusive power over sports event contracts. The Third Circuit Court of Appeals issued a 2-1 decision Monday that affirmed a lower court's conclusion: the Commodity Exchange Act preempts New Jersey's attempt to enforce gambling laws against Kalshi's operations.

What This Means for Prediction Markets

Circuit Judge David J. Porter wrote that allowing New Jersey to apply its gambling statutes would directly conflict with the Commodity Futures Trading Commission's regulatory framework. "Allowing New Jersey to enforce its gambling laws and state constitution would create an obstacle to executing the Act because such state enforcement would prohibit Kalshi, which operates a licensed [designated contract market] under the exclusive jurisdiction of the CFTC, from offering its sports-related event contracts in New Jersey," Porter explained in the opinion.

The ruling targets exactly what Congress intended to prevent: a fragmented regulatory landscape. "This state regulation is exactly the patchwork that Congress replaced wholecloth by creating the CFTC," Porter noted—a direct acknowledgment that federal commodity law supersedes state-level gambling restrictions.

Kalshi CEO Tarek Mansour celebrated the outcome on X, calling it "a big win for the industry and millions of users." The decision sets Kalshi apart from other platforms facing crackdowns and validates the company's bet on federal jurisdiction rather than compliance with state rules.

The Dissent Signals Real Legal Uncertainty

Judge Jane Roth's dissenting opinion adds crucial context to this crypto and trading regulatory moment. She argued that Kalshi's products are fundamentally sports gambling dressed up in commodity market language. "The question of whether sports-event contracts are swaps is a thorny issue with the potential to radically upend the legal landscape governing the gambling industry," Roth wrote, warning that the majority opinion didn't adequately address this complexity.

Roth contended that Kalshi's event contracts were "virtually indistinguishable" from traditional sports betting offerings, emphasizing that the company's "performative sleight meant to obscure the reality that Kalshi's products are sports gambling."

CFTC Chair Doubles Down on Exclusive Authority

CFTC Chair Michael Selig has made prediction markets a central focus since taking office. Speaking Monday at Vanderbilt University's Digital Assets and Emerging Tech Policy Summit, Selig reaffirmed the agency's broad interpretation of its mandate: "Our definition of commodity and statute is very broad. It includes events on sports, it includes events in politics, it includes corn and grains and all sorts of things."

The CFTC has been aggressive in defending this position. Last week alone, the regulator sued Arizona, Connecticut, and Illinois to block what it deemed unlawful efforts to regulate prediction markets. Selig also noted exceptions exist for event contracts "readily susceptible to manipulation"—an important qualifier for market intelligence analysts tracking regulatory boundaries.

The appellate ruling arrives amid a wave of state-level enforcement actions. Nevada recently extended its ban on Kalshi's event-based contracts, creating a patchwork of contradictory rulings that could eventually trigger Supreme Court intervention. That possibility carries enormous weight: a high court decision could reverse or modify the 2018 ruling that gave states authority to regulate sports gambling.