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The Third Circuit Court of Appeals handed Kalshi a significant early victory in its legal fight with New Jersey regulators, ruling that federal law likely pre-empts the state’s ability to block the company’s sports-related event contracts.
In a decision issued April 6, the court affirmed a lower court’s preliminary injunction preventing the New Jersey Division of Gaming Enforcement from enforcing state gambling laws against Kalshi while the case proceeds.
Court sides with Kalshi on federal pre-emption
At the center of the dispute is whether Kalshi’s sports event contracts, which allow users to trade on outcomes of games, are federally regulated financial products or unlawful sports betting under state law.
The Third Circuit sided, for now, with Kalshi. Judge Thomas Porter wrote in the majority opinion.
“Because Kalshi has demonstrated a reasonable chance of success on its argument that the Commodity Exchange Act (‘the Act’) pre-empts otherwise applicable state law, we will affirm.”
Kalshi operates a federally licensed exchange regulated by the Commodity Futures Trading Commission (CFTC), where it offers event-based contracts tied to real-world outcomes. The company argued that these contracts qualify as “swaps” under federal law, placing them under the CFTC’s exclusive jurisdiction.
The court agreed that interpretation is likely correct, at least at this stage. The opinion states:
“Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction.”
New Jersey’s enforcement blocked, for now
New Jersey regulators had issued a cease-and-desist letter in 2025, arguing the contracts violate the state constitution and laws prohibiting certain forms of sports wagering, particularly on collegiate events.
But the Third Circuit found that allowing state enforcement would undermine Congress’ intent to create a unified federal framework for derivatives markets. The court wrote:
“Allowing New Jersey to enforce its gambling laws … would create an obstacle to executing the Act because such state enforcement would prohibit Kalshi … from offering its sports-related event contracts.”
For now, the injunction means Kalshi can continue offering its sports event contracts in New Jersey while the case moves forward.
Potential ripple effects for sports betting industry
The ruling represents a potentially significant development for the broader US sports wagering landscape, especially as prediction markets continue to expand into sports-related offerings.
If upheld on the merits, the decision could open the door for federally regulated platforms like Kalshi to operate nationwide without needing state-by-state sports wagering licenses.
However, the decision is not final and applies only to the preliminary injunction phase, meaning the underlying legal questions are still unresolved.
Dissent warns of ‘sports gambling’ loophole
The ruling also drew a sharp dissent, with Judge Jane Roth arguing that Kalshi’s products are functionally indistinguishable from traditional sports wagering. Roth wrote:
“While online sportsbooks are regulated by states such as New Jersey, Kalshi asserts that it is outside the bounds of state regulation because it does not offer gambling products.
“I see Kalshi’s actions as … meant to obscure the reality that Kalshi’s products are sports gambling.”
Roth emphasized that gambling regulation has historically fallen under state authority and warned that the majority’s reasoning could dramatically reshape that balance.
For now, Kalshi holds the early advantage, but the case is far from over, and its ultimate outcome could carry major implications for regulators and operators across the country.
