KalshiEX LLC operates a designated contract market licensed by the Commodity Futures Trading Commission, offering event contracts that allow customers to trade on predictions about various events including political elections, weather, and sports outcomes. In early 2025, New Jersey sent Kalshi a cease-and-desist letter claiming its sports-related event contracts violated the state's constitution and gambling laws prohibiting collegiate sports betting, threatening fines up to $100,000 for violations.
Writing for the majority, Circuit Judge Porter concluded that Kalshi demonstrated a reasonable chance of success on its preemption argument because the Commodity Exchange Act grants the CFTC exclusive jurisdiction over "swaps" traded on designated contract markets. "The Act preempts state laws that directly interfere with swaps traded on DCMs," Porter wrote, finding that Kalshi's sports-related event contracts qualify as swaps under federal law since they depend on event outcomes "associated with a potential financial, economic, or commercial consequence."
Kalshi immediately filed suit in New Jersey federal court after receiving the state's cease-and-desist letter, seeking a preliminary injunction. District Judge Edward S. Kiel granted the injunction, finding that Kalshi faced irreparable harm and that enforcing an unconstitutional law would not serve the public interest. New Jersey officials appealed the ruling.
The decision adds to growing litigation over whether state gambling laws can regulate prediction market platforms operating under federal oversight. Circuit Judge Roth dissented, arguing that Kalshi's products "are virtually indistinguishable from the betting products available on online sportsbooks" and that the presumption against preemption should apply given states' traditional role in gambling regulation. The ruling could influence similar disputes as prediction markets expand into sports betting.