Court Sides With Kalshi, Weakens States’ Grip on Prediction Markets

Reuters, the Nevada Independent, and Gambling News contributed to this report.

A US appeals court just handed prediction markets a major win – and put state regulators on notice.

In a 2-1 decision, the Philadelphia-based 3rd Circuit ruled that New Jersey can’t block Kalshi from offering sports-related contracts to users in the state. The reason? Federal law takes precedence.

At the center of the ruling is the Commodity Futures Trading Commission (CFTC), which the court says has exclusive authority over the kind of event-based contracts Kalshi offers. Judges agreed those contracts qualify as “swaps” – a type of financial derivative – meaning state gambling laws don’t apply in the usual way.

That’s a big shift. And it’s the first time a federal appeals court has weighed in on this exact fight: who controls prediction markets – Washington or the states?

Kalshi’s CEO Tarek Mansour didn’t hold back, calling it a win for both the company and its users. For the industry, it’s something more: a legal foothold.

Prediction markets let users trade on outcomes – sports results, elections, even economic data. You’re not placing a traditional bet, the companies argue; you’re trading contracts tied to real-world events. Critics aren’t convinced.

New Jersey is among several states that see little difference between these platforms and online sportsbooks. Regulators had already sent Kalshi a cease-and-desist letter, arguing its offerings broke state laws, including restrictions on betting for younger users and bans on certain types of wagers.

The court didn’t buy that argument – at least not this time.

Writing for the majority, Judge David Porter said the structure matters. Since Kalshi operates a federally licensed exchange, the CFTC’s authority overrides state-level attempts to regulate those trades.

That aligns with the federal regulator’s own stance. The CFTC has been actively pushing back against states trying to rein in prediction markets, even suing places like Arizona, Connecticut, and Illinois over similar disputes.

Still, the decision wasn’t unanimous. Judge Jane Richards Roth dissented, arguing that Kalshi’s contracts look and feel like gambling products – no matter how they’re packaged. She pointed to platforms like DraftKings and FanDuel, saying the differences are more technical than real.

That tension – finance vs. gambling – is driving a growing legal tug-of-war across the US.

New Jersey officials aren’t backing down. The state’s attorney general is reviewing next steps, which could include asking the full appeals court to reconsider the case. Meanwhile, similar battles are unfolding elsewhere.

In Nevada, a judge has already moved in the opposite direction, extending a ban on Kalshi’s sports contracts and signaling a tougher stance. Other states are circling, watching closely, and in some cases preparing their own legal challenges.

The patchwork is getting messy. One state allows access, another blocks it. Some cases are headed to higher courts, including an upcoming hearing in San Francisco that could further shape the rules.

Behind it all is a bigger question that’s still unresolved: are prediction markets financial tools – or just betting in disguise?

For now, Kalshi has momentum. But the fight is far from over.