Key Points
- Kalshi has filed a new brief in its prediction market lawsuit against the state of New Jersey
- New Jersey state gambling regulators are seeking to overturn a temporary injunction obtained by Kashi
- Kalshi's lawyers suggest that New Jersey regulators cannot ban a federally-approved organization
Accusing the New Jersey Department of Gaming Enforcement of cherry-picking legalese to make their case, lawyers representing prediction market company
Kalshi
filed a brief in the U.S. Court of Appeals for the Third Circuit. The brief is in support of the temporary injunction Kalshi gained to continue to operate a prediction market site in New Jersey.
New Jersey gambling regulators are seeking to ban prediction market sites like Kalshi from operating in the state.
In this brief, lawyers for Kalshi argue that its prediction market services are federally regulated by the Commodity Futures Trading Commission (CFTC). They argue that the state of New Jersey has no legal standing to seek to ban Kalshi’s sporting event contracts.
- Kalshi began offering prediction markets on sports and other events in New Jersey in January 2025. They are doing so through the derivative trading company Robinhood.
- In April, the New Jersey Department of Gaming Enforcement (NJDG), which regulates sports betting in the state, issued a cease and desist order prohibiting Kalshi from operating in the Garden State.
- Kalshi responded by filing for and securing a preliminary injunction against the NJDG in May.
“I am persuaded that Kalshi’s sports-related event contracts fall within the CFTC’s exclusive jurisdiction and am unconvinced by the defendant’s arguments to the contrary,” Judge Edward Kiel wrote in his ruling.
This ruling prevented the state from being able to enforce the cease-and-desist order designed to prohibit Kalshi's operations within New Jersey.
The argument from Kalshi's lawyers is basically that they can't be required to serve two different regulatory masters. The brief argues that "allowing states to use their gambling laws to regulate such trading would nullify the CFTC’s authority and undermine the nationwide uniformity necessary for derivatives markets to work.”
The debate between prediction markets and sports betting is ongoing
New Jersey is one of three states that have filed suit seeking to shut down Kalshi from operating. The argument from attorneys general in these states is that Kalshi's sports prediction markets are just sports betting in disguise. They believe that Kalshi is doing an end-run on sports betting laws in their states.
With prediction markets, bets aren't placed against the house. Instead, players invest in one side of an issue or the other, such as whether the New York Jets would win the Super Bowl this season. Payouts are based upon the probability of that event occurring.
Lawyers representing Kalshi point to the fact that Congress has already ruled that prediction markets are swaps and not bets. "Defendants bury the lede," the brief argues. "Congress in the Special Rule expressly contemplated that sports-event contracts may meet the statutory definition of ‘swap.’ Neither extratextual limitations nor canons of construction displace Congress’s clear language.”
In its cease-and-desist order, NJDG interim director Mary Jo Flaherty counters that Kalshi is merely offering unauthorized sports betting. The order specifically noted that "Kalshi is currently offering unauthorized sports wagering to New Jersey residents on collegiate sporting events occurring in New Jersey in violation of the New Jersey Constitution.”
What are the next steps in this battle?
Supporters of Kalshi have until July 31 to issue amicus briefs backing Kalshi's side of this legal debate. The court will then review all of the briefs on each side of the argument. Both sides will be making oral arguments on September 8.
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