Federal Court Rules Prediction Market Sports Bets Are 'Swaps' — Exempt from State Gambling Laws

The US Court of Appeals for the 3rd Circuit has ruled 2-1 that prediction market sports bets are "swaps" under federal law, exempting them from state gambling regulations. This is a landmark victory for Kalshi and the broader prediction market industry.

The Ruling

• Court: US Court of Appeals, 3rd Circuit (2-1 decision)
• Defendant: Kalshi (CFTC-registered designated contract market)
• Plaintiff: New Jersey Division of Gaming Enforcement
• Key finding: CFTC has exclusive jurisdiction over prediction market contracts

Legal Logic

The court found that:

1. The Commodity Exchange Act gives the CFTC exclusive jurisdiction over Designated Contract Markets (DCMs)
2. Kalshi's sports event contracts are swaps traded on a CFTC-licensed DCM
3. This preempts state laws that directly interfere with swaps on DCMs
4. New Jersey's attempt to regulate these was framed too broadly

The Dissent

Circuit Judge Jane Roth dissented strongly:

"Kalshi's offerings are virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel."

She noted Kalshi offered game outcomes, point spreads, game props, and player props — identical to traditional sportsbooks that require state licenses.

Background

New Jersey sent Kalshi a cease-and-desist letter last year, alleging unauthorized sports wagering. The state constitution also prohibits betting on college sports, which Kalshi offers.

Industry Implications

• Kalshi can now operate sports event contracts nationwide without state gambling licenses
• Other prediction markets (Polymarket, Metaculus) may benefit from this precedent
• States lose regulatory control over a growing segment of sports betting
• CFTC's authority expanded into what was traditionally state-regulated territory

This ruling fundamentally reshapes the boundary between financial regulation and gambling law in the United States.