Third Circuit judges appear skeptical of New Jersey in Kalshi case

The Third Circuit Court of Appeals heard arguments this week in Kalshi v New Jersey, a closely watched case testing where state authority over gambling stops and where the Commodity Futures Trading Commission’s authority over swaps begins. From the start, it sounded like the panel might be leaning toward Kalshi, with at least two judges sounding doubtful about New Jersey’s arguments.

The prediction market had already won a battle earlier this year against the state’s regulators, and Kalshi launched new sports wagers on its platform last month.

New Jersey built its case around the claim that sports betting contracts are not “swaps” under federal law, and that idea shaped the discussion. But Judge Michael Chagares, who was presiding, pointed out that the statutory definition of swaps is “pretty broad,” which raised doubts right away.

Judge David J. Porter pushed for concrete examples of sports bets that would not count as swaps, and Kalshi’s lawyer pointed to player props, the same kind of contracts Kalshi itself offers. That back and forth showed how difficult it is to draw a clear line. If not all sports bets are swaps, then how should courts decide which ones are?

Some people following the case said New Jersey’s decision to start with the definition of a swap may have actually worked in Kalshi’s favor.

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 pushes for state regulation of sports betting in Kalshi case

New Jersey leaned hard on the presumption against preemption, casting sports betting as something for state legislatures to handle. But the judges kept steering the conversation back to the statutory definition of swaps, which signaled some doubt about the state’s approach. At one point, a judge even said Kalshi’s argument was better than “negligible,” a remark that sounded like a good sign for the startup.

Kalshi opened with what it saw as its strongest point, that the Commodity Exchange Act gives the CFTC “exclusive jurisdiction” over activity on designated contract markets. The company argued that if New Jersey wins, states could essentially regulate the global futures market by labeling almost any bet on a future event as “gambling.”

Kalshi also pushed both “field” and “conflict” preemption arguments. On the conflict side, its lawyer pointed to New Jersey’s rule that sports betting operators can only take wagers from people inside the state. That is impossible for a federally regulated designated contract market, which serves customers nationwide. If every state had a rule like that, Kalshi argued, the federal framework would collapse.

The prediction market’s pitch was that its federally regulated markets can exist alongside state-regulated sportsbooks, but that state law cannot be used to block trading on a CFTC-regulated exchange.

The judges kept testing both sides. One tossed out a hypothetical about a ping pong match between judges as an example of a market too trivial to fall under CFTC oversight, probing the limits of federal power. Another said they understood New Jersey’s feeling of being “cut out” of sports betting regulation, but pointed out that Congress had clearly given the CFTC sweeping authority over swaps.

Near the end, New Jersey tried a kind of gotcha by pointing to Kalshi’s earlier litigation over election contracts, where the company suggested sports betting was not part of its business. But that move may have backfired, since admitting the CFTC could regulate sports contracts only strengthens Kalshi’s preemption claim.

Observers say Kalshi had a strong start

People watching the case noticed a clear difference in how the two sides argued. Kalshi’s lawyer was calm and clear, dealing with each issue directly. New Jersey’s presentation felt scattered and defensive. At one point, when the state claimed there was no “comprehensive scheme” for regulating these markets, a judge shot back by asking what the 38 “core principles” of the CFTC were for, if not comprehensive oversight.

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 up by calling the case “interesting, and very well litigated.” With that, court was adjourned. Nothing is guaranteed, but the tone in the courtroom made it seem like Kalshi might have the edge.

Featured image: Kalshi / Canva

The post Third Circuit judges appear skeptical of New Jersey in Kalshi case appeared first on ReadWrite.

Source link