The third Circuit Court of Appeals heard the arguments this week in Kalshi V New Jersey, a case of cases closely on the judgments of the State authority on the game and where the authority of the Commodity Futures Trading on Swaps begins. From the start, it seemed that the panel was leaned over to Kalshi, with at least two judges who seem doubtful to the arguments of New Jersey.
The prediction market had already won a battle earlier this year against state regulators, and Kalshi launched new sports betting on its platform last month.
New Jersey has built its case around the assertion that sports betting contracts are not “exchanges” under federal law, and this idea has shaped the discussion. But judge Michael Chagares, who presided over, stressed that the statutory definition of Swaps is “fairly wide”, which immediately raised doubts.
J. David J. Porter has pushed for concrete examples of sports betting that would not count as exchanges, and the lawyer of Kalshi underlined the accessories of the players, the same type of contract that Kalshi himself offers. It has shown how difficult it is to trace a clear line. If all sports betting are not exchanges, how should the courts decide which ones are?
Some people according to the case said that New Jersey’s decision to start with the definition of a swap may have really worked in favor of Kalshi.
the state's attorney is breaking down his argument into three
1. sports contracts aren't swaps
2. "Wyeth" (which is the seminal preemption case) shows that sports betting is within state powers
3. that kalshi doesn't get to preemption in the standard analysis— Adhi Rajaprabhakaran (@eightyhi) September 10, 2025
New Jersey put pressure for the regulation of the state of sports betting in the case of Kalshi
New Jersey relied strongly on the presumption against pre -emption, throwing sports betting as something for the legislatures of the States to manage. But the judges continued to direct the conversation to the statutory definition of Swaps, which reported a doubt about the state approach. At one point, a judge even said that Kalshi’s argument was better than “negligible”, a remark that sounded like a good sign for the startup.
Kalshi opened with what he considered his strongest point, which the law on the exchange of goods gives the CFTC “exclusive jurisdiction” on activity on the designated contractual markets. The company argued that if New Jersey wins, the States could essentially regulate the global market in the long term by labeling almost all bets on a future event like “Game”.
Kalshi also pushed the “field” and “conflict” pre -emptive arguments. On the conflict side, his lawyer highlighted the New Jersey rule that sports betting operators can only take guys from people inside the state. This is impossible for a contract of contracts appointed by the federal government, which serves customers on a national scale. If each state had a rule like this, said Kalshi, the federal framework would collapse.
The argument of the prediction market was that its markets regulated by the federal government can exist alongside sports books regulated by the State, but that the law of the State cannot be used to block trading on an exchange regulated by the CFTC.
The judges continued to test both sides. One threw a hypothetical on a ping-pong match between judges as an example of an overly trivial market to take up monitoring of the CFTC, by probing the limits of federal power. Another said that he understood New Jersey’s feeling of being “cut” to the sports betting regulations, but stressed that Congress had clearly given the CFTC scanning authority on Swaps.
Towards the end, the New Jersey tried a kind of Gotcha by pointing to Kalshi previous litigation on electoral contracts, where the company suggested that sports betting were not one of its activities. But this decision may have returned, because the admission of the CFTC could regulate sports contracts only strengthens the preemption request from Kalshi.
Observers say Kalshi has experienced a strong departure
People who watch the matter have noticed a clear difference in the way the two parties argued. Kalshi’s lawyer was calm and clear, directly dealing with each problem. The presentation of New Jersey was dispersed and defensive. At one point, when the State said that there was no “complete scheme” to regulate these markets, a judge resumed by asking that the 38 “basic principles” of the CFTC were for, if not complete monitoring.
I’m expecting an affirmance in favor of Kalshi, but some of the late questioning suggested that the court may not grant an outright victory to Kalshi. Player props may be the bridge too far.
— Daniel Wallach (@WALLACHLEGAL) September 10, 2025
The panel wrapped things by calling the case “interesting and very well pleaded”. With that, the court was postponed. Nothing is guaranteed, but the tone in the courtroom has given the impression that Kalshi could have the advantage.
Star image: Kalshi / Canva
The post-three circuit judges seem skeptical about the New Jersey in the case of Kalshi appeared first on Readwrite.
