Appeals court backs Kalshi against New Jersey as Arizona case adds new pressure

A federal appeals court has handed Kalshi an early but meaningful win in its fight with New Jersey regulators, and a fresh filing in a separate Arizona case is now adding momentum to the company’s broader legal strategy.

In a decision issued Monday (April 6), the U.S. Court of Appeals for the Third Circuit said Kalshi is likely to succeed in arguing that federal law overrides state gambling restrictions against New Jersey. This keeps a lower court injunction in place, blocking New Jersey from enforcing its laws against the company as the case continues.

Kalshi CEO Tarek Mansour quickly welcomed the outcome, writing, “The Third Circuit ruled in Kalshi’s favor.” He added, “People use prediction markets because they’re more fair, transparent, and reward being right.”

Kalshi’s event contracts allow users to trade on the outcomes of real-world events, including sports. However, New Jersey regulators have argued those contracts function as illegal sports betting and previously issued cease-and-desist orders targeting Kalshi and partners such as Robinhood.

Federal appeals court decision likely preempts New Jersey state gambling rules against Kalshi

The appeals court, at least for now, rejected that argument. Judges said Kalshi showed a “reasonable chance of success” in claiming that the Commodity Exchange Act preempts state law in this area.

As the court explained, “The contract’s value is determined by market forces… based on perceptions about the event’s likelihood.” Its market-based structure, the panel said, places the contracts within the scope of federally regulated derivatives.

The court added that “Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction.” 

Because of that, the panel said New Jersey’s attempt to apply its gambling laws would interfere with federal authority and “would create an obstacle to executing the Act.”

This echoes concerns raised during earlier hearings, where Third Circuit judges signaled skepticism about whether state gambling frameworks should apply to federally approved financial instruments.

At the same time, pressure from states is intensifying. Ohio also moved to block Kalshi’s offerings following similar action in Nevada, pointing to a growing push among regulators to limit sports-related prediction markets.

Arizona filing adds new dimension to legal fight

A newly filed notice in a separate Arizona case shows how Kalshi is using the Third Circuit’s ruling to reinforce its position nationwide.

In that filing, the company told a federal court that the appeals decision is the first at that level to directly address whether the Commodity Exchange Act preempts state gambling laws in this context.  It also flagged an upcoming Ninth Circuit hearing scheduled for April 16 that will consider similar legal questions.

Kalshi argued that the Third Circuit’s reasoning should carry weight elsewhere, particularly its conclusion that both “field and conflict preemption” apply when states try to regulate swaps traded on federally licensed exchanges. 

The filing also states how the court defined the contracts themselves. According to the decision, “Kalshi’s sports-event contracts fit comfortably” within the legal definition of swaps because sports outcomes can have “financial, economic, or commercial consequence” for stakeholders like sponsors and advertisers. 

Beyond the legal classification, the Third Circuit found Kalshi would face irreparable harm without an injunction, citing threats of civil and criminal penalties along with reputational and economic damage. Judges also said the public interest favors enforcing federal law in this area.

Mansour cast the ruling in broader terms, writing, “Free markets work. We should keep them that way.” He added, “This is a big win for the industry and millions of users.”

Not everyone on the panel agreed. A dissenting judge argued the contracts closely resemble traditional sports betting and should remain under state oversight.

For now, though, Kalshi can continue operating while the legal fight unfolds across multiple jurisdictions.

Featured image: Canva / Kalshi

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