Judges Appear Skeptical of New Jersey’s Arguments in Kalshi Prediction Market Case
A panel of federal appellate judges appeared deeply skeptical of New Jersey’s arguments during an oral argument over the future of sports-based prediction markets. While no final ruling was issued, the tone and line of questioning from the three-judge panel of the U.S. Third Circuit Court of Appeals suggested a clear leaning in favor of Kalshi’s position, according to multiple legal observers who attended the hearing.
A Battle Over a Single Word: “Swap”
The core of the legal dispute is the definition of a “swap.” Kalshi, which is regulated by the federal Commodity Futures Trading Commission (CFTC), argues that its sports-related event contracts are a form of “swap,” or derivative, and are therefore under the exclusive jurisdiction of the federal government.
New Jersey, on the other hand, contends that these products are nothing more than illegal sports betting and that the state’s gaming regulators have the authority to shut them down.
During the hearing, the judges repeatedly challenged New Jersey’s narrow interpretation of the law. Chief Judge Michael Chagares noted that the statutory definition of a “swap” is “pretty broad,” while Judge David Porter pressed the state’s attorney to provide a clear example of a sports bet that would not qualify as a swap under that broad definition, noting that any such limitations are “not in the statute.”
“Chaos in U.S. and Global Markets”
Kalshi’s legal team argued that the stakes of the case go far beyond sports. They warned that allowing individual states to pick and choose which federally regulated derivatives are legal would “unwind hard-won post-crisis reforms and invite chaos in U.S. and global markets.”
Sara Slane, Kalshi’s Head of Corporate Development, wrote in a recent post that a ruling in favor of New Jersey could put the entire “$730 trillion global derivatives market that underpins the economy” at risk.
The judges seemed to acknowledge the weight of this argument. At one point, a judge noted that while he understood New Jersey’s frustration at being “cut out” of the regulation of sports betting, Congress had clearly granted the CFTC broad authority over swaps.
An Uphill Battle for New Jersey
The sentiment in the courtroom was that New Jersey faces an uphill battle. Legal observers, including the attorney Andrew Kim, who was in attendance, noted that the judges seemed to be “nodding along” with Kalshi’s arguments.
The case is a direct appeal of a lower court ruling from April, in which a federal judge granted Kalshi a preliminary injunction, allowing it to continue operating in New Jersey while the case proceeds. That judge was “persuaded that Kalshi’s sports-related event contracts fall within the CFTC’s exclusive jurisdiction.”
While the oral arguments appeared to favor Kalshi, a final resolution is not expected anytime soon. Legal experts predict that the case could ultimately end up before the U.S. Supreme Court, a process that could take up to two years.
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