A US federal appellate court on Monday held that the New Jersey Division of Gaming Enforcement (NJDGE) cannot enforce state sports-betting laws against financial services company and prediction market facilitator Kalshi while litigation is pending.

The US Court of Appeals for the Third Circuit upheld a district court ruling that enjoined NJDGE and allowed Kalshi to continue operating its online, event contract trading platform while the suit proceeds at trial. The court analyzed the case under the legal test for preliminary injunctions, which involves establishing the suit’s “likelihood of success on the merits” and whether the party seeking injunction “is more likely than not to suffer irreparable harm” without the injunction. After establishing these factors, federal courts then balance “equities” of the case against “the public interest.”

The case centered on Kalshi’s likelihood of success on the merits, which rested in large part on whether the federal Commodity Exchange Act (CEA) preempted New Jersey state laws that regulate gambling. In 1974, Congress amended the CEA to create the Commodity Futures Trading Commission (CFTC), which regulates federally “designated contract markets.” The CFTC has exclusive jurisdiction over designated contract markets, though the CEA preserves state authority in areas not covered by the act.

In 2010, Congress amended the CEA again to include “swaps” within the CFTC’s jurisdiction, which are “any agreement, contract, or transaction…that provides for any payment…that is dependent on the occurrence, nonoccurrence, or…contingency associated with a potential financial, economic, or commercial consequence.”

Kalshi allows the public to purchase “event contracts,” which are labeled as a type of “derivative”–a financial tool that derives its value from an underlying asset. Derivatives attempt to utilize the “wisdom of the crowd,” relying on broad public input to assess risk in certain markets. These event contracts span a wide range of subjects and activities, as the court explained:

For example, an event contract could ask whether an earthquake will take place in a certain city on a certain date. A purchaser may then trade on either “yes” or “no.” If the earthquake does occur in the city on the date, the “yes” position would be paid out.

In 2025, Kalshi expanded its event contract offerings to include sporting events. New Jersey argued that the CEA does not extend to the “subfield” of sports betting, and the state retained power to enforce gambling prohibitions on college sporting events without federal interference. However, the court disagreed and ruled that federal law likely preempted state law, writing:

Because Kalshi’s sports-related event contracts are swaps under the [CEA], the District Court properly defined the scope of…preemption as the regulation of trading on a [designated contracts market] (a form of futures trading) rather than as gambling (a broader and traditionally state-regulated field).

New Jersey also argued that event contracts for sporting events are not sufficiently “joined or connected” to an underlying asset to qualify as a “swap.” However, the court held that an event contract must only be “associated with” an underlying asset or commercial consequence. Considering the number of sponsors, advertisers, TV networks, and other financial assets affected by sporting events, the court reasoned that contracts on such events qualify as “swaps.”

Dissenting Judge Jane Roth focused on the vast similarities between Kalshi and other sports betting platforms, which remain under state regulation. She wrote:

When I went on the Kalshi page for the Carolina Panthers v. Tampa Bay Buccaneers football game… I could have bet on the winner…or whether Tampa Bay wide receiver Mike Evans would score a touchdown… These offerings are virtually indistinguishable from the betting products available on online sportsbooks… Kalshi asserts that it is outside the bounds of state regulation because it does not offer gambling products… The Majority agrees, holding that Kalshi’s…branding of its wagers as sports-event contracts are acts of alchemy as a performative sleight meant to obscure the reality that Kalshi’s products are sports gambling.