Kalshi Beats New Jersey in Court. Prediction Markets Just Got Federal Backing.
A federal appeals court just handed prediction markets their biggest legal victory yet. On Monday, a 3rd US Circuit Court of Appeals panel ruled 2-1 that New Jersey has no authority to regulate Kalshi’s sports prediction market. Only the federal government can do that.
This is the first federal-level ruling in what’s quickly becoming a nationwide legal battle over prediction markets. And the result matters far beyond New Jersey.
What the Court Actually Decided
The fight started when New Jersey sent Kalshi a cease and desist letter in 2025. The state claimed Kalshi violated its ban on collegiate sports betting.
Kalshi pushed back hard. The company sued New Jersey, arguing its sports contracts aren’t bets at all. Instead, Kalshi called them swaps, a type of financial instrument regulated by the Commodity Futures Trading Commission (CFTC) at the federal level.
Two of the three judges bought that argument. They ruled that Kalshi’s sports-related event contracts legally qualify as swaps. So federal financial law, not state gambling law, governs them.
A lower court had already sided with Kalshi before the appeal. Now the appeals court has confirmed that decision.
The Dissent Worth Reading
Not everyone agreed. US Circuit Judge Jane Richards Roth dissented sharply. She wrote that Kalshi’s offerings were “virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel.”
That’s the core tension in every one of these cases. Is a sports prediction contract a financial swap or just a bet with fancier branding? Most state regulators say it’s the latter. Two federal judges now say it’s the former.
New Jersey Attorney General Jennifer Davenport can ask the full 3rd Circuit to rehear the case. So this fight isn’t necessarily over.
The CFTC’s Very Convenient Stance
Here’s where things get interesting. The CFTC, the federal agency that now holds regulatory power over these products, is enthusiastically pro-prediction market.
CFTC Chair Brian Quintenz is a Donald Trump appointee who has publicly called prediction markets like Kalshi and Polymarket “exciting products.” Last week, the CFTC sued Arizona, Connecticut, and Illinois over their own attempts to regulate prediction markets. The federal agency is actively fighting states to keep these platforms running.
The Trump family’s involvement adds another layer. Donald Trump Jr. serves as a paid adviser to Kalshi and an unpaid adviser to Polymarket. Trump Media and Technology Group, which runs Truth Social, is building its own prediction market platform.
So the agency now positioned as the sole federal regulator of these markets is led by someone who explicitly champions them, while the president’s family holds advisory roles at two major platforms. That’s a notable alignment of interests.
What These Platforms Actually Do
Online prediction markets let users bet on the outcome of almost anything. Sports events, election results, military conflicts, economic indicators. You name it, someone is probably trading contracts on it.
These platforms are new, but they’ve already attracted serious controversy. Evidence of insider trading has emerged at significant scale. Suspicious bets and large payouts appeared ahead of US and Israeli military strikes in Iran, and ahead of the brief US military action in Venezuela.
Blockchain analyst DeFi Oasis found that fewer than 0.04 percent of Polymarket accounts captured more than 70 percent of total profits. That’s $3.7 billion concentrated in a tiny fraction of users. That statistic raises obvious questions about information advantages and market manipulation.
State Regulators Are Not Giving Up
Multiple state gaming regulators have filed legal challenges against both Kalshi and Polymarket in recent months. Their concerns range from election integrity issues to underage betting. But the broad argument from every state is consistent: these are illegal gambling businesses operating without proper licenses.
Monday’s ruling is a significant setback for that coalition of states. But it’s one ruling from one circuit court. The issue remains active in several other courts, and state attorneys general are clearly willing to keep fighting.
Kalshi CEO Tarek Mansour called the ruling “a big win for the industry.” He’s right that it is. But with dissenting judges, ongoing litigation in multiple states, and a federal agency that appears ideologically committed to protecting these platforms regardless of state concerns, the deeper questions here are nowhere close to settled.
The legal and ethical debate over prediction markets is just getting started. Whether these platforms represent innovative financial instruments or lightly rebranded gambling operations with federal protection will shape how millions of people can bet on everything from the Super Bowl to the next geopolitical crisis.
