Kalshi won a victory in the battle over who gets to oversee fast-growing prediction markets, after a panel of judges told New Jersey state officials that the Commodity Futures Trading Commission regulates the platform.
The ruling marks a big moment for Kalshi, which has had mixed results arguing that it should be overseen by the CFTC rather than state regulators. But on Monday a federal appeals court agreed, with a 2-1 majority upholding a preliminary injunction against the state.
States have been amping up their fight against prediction markets, which allow customers to wager on issues ranging from geopolitical events to sports and the weather, while the Trump administration has embraced the surging industry. The states have argued that they are gambling businesses that should be subject to state oversight.
The ruling by the US Court of Appeals for the Third Circuit could influence how other cases involving prediction markets will be handled going forward. Kalshi co-founder Tarek Mansour hailed the decision as a “big win for the industry.”
“This is the strongest indication we’ve seen from a federal court of how the merits will go,” said Ilya Beylin, a law professor at Seton Hall University who studies prediction markets. “This is a strong signal.”
For now, the exchange will be able to operate in the area as officials in New Jersey decide whether to accept the decision, request an en banc hearing with a larger panel of appeals court judges or appeal to the US Supreme Court.
Legal analysts say the path to the Supreme Court will likely come from a so-called “circuit split,” where courts reach conflicting opinions on an issue. But that may happen sooner rather than later: Oral arguments in different Kalshi case against Nevada in the Ninth Circuit are set for this month.
While the Third Circuit ruling on Monday will give other judges a precedent to point to moving forward, the dissent in the decision could be seen as a “bellwether” of mixed opinions, said Daniel Wallach, a gaming attorney who tracks prediction market litigation.
“I see Kalshi’s actions as a performative sleight meant to obscure the reality that Kalshi’s products are sports gambling,” Judge Jane Richards Roth wrote in a dissenting opinion on Monday. “Because Kalshi is facilitating gambling, it can be subjected to state regulation.”
Some legal experts believe that prediction markets have been gaining an upper hand in the sprawling clashes with states, especially as the CFTC has become more active in the litigation and supported the industry. The agency has increasingly asserted federal authority over the platforms and took the unprecedented step of suing Illinois, Connecticut and Arizona last week.
But Wallach says if New Jersey seeks and is granted a hearing with a larger panel of appeals court judges it could end up similar to the case which ultimately granted states control over their own sports gambling laws.
“This one has even greater significance potentially because it goes beyond sports betting,” he added. “It’s an important public question of national significance affecting not only sports gambling, but the limits and extent of federal powers to regulate gambling in the face of contrary state regulation.”
The case is KalshiEX LLC v. Flaherty, 25-01922, US 3rd Circuit Court of Appeals.
