US Federal Court Rules Platform Kalshi Can Continue Offering Sport Event Contracts During Litigation
By Editorial Team
A recent ruling by a US federal appellate court has allowed the financial services company and prediction market facilitator Kalshi to continue offering sport event contracts while litigation is ongoing. The US Court of Appeals for the Third Circuit upheld a district court decision that enjoined the New Jersey Division of Gaming Enforcement (NJDGE) from enforcing state sports-betting laws against Kalshi.
The court’s decision was based on the analysis of the legal test for preliminary injunctions, focusing on the likelihood of success on the merits of the case and the potential irreparable harm to Kalshi without the injunction. The court also considered the balance of equities and the public interest in the case.
The central issue in the litigation was whether the federal Commodity Exchange Act (CEA) preempted New Jersey state laws regulating gambling. The CEA, which established the Commodity Futures Trading Commission (CFTC) in 1974, gives the CFTC exclusive jurisdiction over designated contract markets. In 2010, the CEA was amended to include swaps within the CFTC’s jurisdiction.
Kalshi offers event contracts, which are considered derivatives and derive their value from an underlying asset. These event contracts cover a wide range of subjects, including sporting events. The court ruled that Kalshi’s sports-related event contracts qualify as swaps under the CEA, preempting state laws on gambling.
While the majority of the court supported Kalshi’s position, dissenting Judge Jane Roth raised concerns about the similarities between Kalshi and traditional sports betting platforms regulated by states. Judge Roth argued that Kalshi’s offerings were akin to sports gambling products and criticized the branding of the contracts as a way to circumvent state regulations.
The ruling allows Kalshi to continue operating its online platform for event contract trading as the case proceeds to trial. The outcome of this litigation could have broader implications for the regulation of prediction markets and online trading platforms in the future.
