Kalshihas won the first federal appeals court ruling on whether states can regulate prediction markets.

The Third Circuit Court of Appeals on Monday ruled by 2-1 that the Commodity Exchange Act preempts New Jersey’s gambling laws, finding that Kalshi’s sports event contracts are federal derivatives governed by the CFTC, not state-regulated bets.

What’s The Fight About

Since the Supreme Court struck down the federal sports betting ban in 2018, states have controlled whether and how to legalize sports wagering.

Roughly 40 states now have legal sportsbooks, all licensed and taxed at the state level.

Kalshi’s argument upends that framework.

The company says its contracts are not bets but financial derivatives listed on a CFTC-registered exchange.

If you offer a contract on the Super Bowl or a presidential election through a designated contract market, it is a federal matter and states have no authority to block it, tax it or require a gambling license.

State regulators argue the contracts are functionally indistinguishable from sports bets.

Where This Ruling Fits

Until Monday, that argument had only been tested in lower courts, where results were split.

Kalshi won injunctions in New Jersey and Tennessee but lost in Maryland, Ohio, Nevada and Massachusetts.

The Third Circuit is a higher court, and its ruling now binds lower courts across New Jersey, Pennsylvania and Delaware.

A federal court in Maryland ruled the opposite way on the same question, and that case is now on appeal to the Fourth Circuit. If the Fourth Circuit disagrees, that kind of split between appeals courts is exactly what sends a case to the Supreme Court.

The ruling lands four days after the Trump administration sued Arizona, Illinois and Connecticut to block state enforcement.

The federal government is now winning in court at the same moment it is suing the states trying to shut prediction markets down.

While states fight to maintain their regulatory grip, the traditional operators they oversee are paying a steep price to play by the old rules.

DraftKings Inc. (NASDAQ:DKNG) and Flutter Entertainment (NYSE:FLUT) pay state licensing fees, comply with state-by-state regulations and remit state taxes.

Kalshi does none of that. If more circuits follow the Third, the cost advantage widens. The Ninth Circuit hears the consolidated Nevada case April 16.

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