Share 
On April 6, 2026, a divided panel of the US Court of Appeals for the 3rd Circuit issued a landmark ruling in KalshiEX LLC v. Flaherty, holding that the Commodity Exchange Act (CEA) likely preempts state gambling laws regarding sports-related event contracts.
The 2-1 opinion, authored by Judge David J. Porter and joined by Chief Judge Michael A. Chagares, affirmed a district court’s preliminary injunction barring New Jersey from enforcing gambling laws against Kalshi. The court determined that because these contracts qualify as “swaps” under the CEA, they are shielded from state regulation by both conflict and field preemption. Judge Jane R. Roth dissented.
A major win for prediction markets
While the ruling is a significant victory for prediction markets, the court emphasized that this is a preliminary injunction rather than a final decision on the merits. The panel found that Kalshi has a “reasonable likelihood” of prevailing—a standard that does not guarantee ultimate victory but suggests the probability of winning is significantly better than negligible.
The case now returns to the US District Court for the District of New Jersey for full adjudication.
Legal analysis: Swaps and preemption
The 3rd Circuit addressed two primary questions: whether sports-related event contracts qualify as swaps under the CEA (7 U.S.C. §1a(47)(A)(ii)) and whether federal law subsequently preempts state constitutional prohibitions on sports betting.
Swap Classification: The court rejected New Jersey’s argument that sports outcomes are not “connected” to economic measures. Instead, the majority ruled that sports outcomes have a documented financial impact on advertisers, sponsors, and broadcast networks. Even the dissent conceded that a plain reading of the CEA suggests these contracts “fit comfortably” within the statutory definition of a swap.
Federal Preemption The court found that two forms of implied preemption apply:
- Field Preemption: The CEA occupies the entire field of trading on CFTC-regulated dedicated contract markets (DCMs).
- Conflict Preemption: Allowing New Jersey to enforce its laws would create a “patchwork” of regulation that Congress intended to replace with a uniform federal framework.
The majority clarified that while states traditionally regulate gambling, the federal government has overseen derivatives markets for over a century. The ruling narrowly applies to trading on DCMs and does not strip states of all gambling regulatory power.
Judicial dissent: Gambling vs. derivatives
Judge Roth’s “fierce” dissent characterized Kalshi’s contracts as “virtually indistinguishable” from products found on online sportsbooks. She argued that the presumption against preemption should apply with “special force” in gambling cases and suggested that CFTC Rule 40.11(a)(1), which prohibits “gaming” contracts, actually undermines Kalshi’s argument.
Supreme Court and 9th Circuit outlook
New Jersey has until late May 2026 to petition for an en banc rehearing before the full 3rd Circuit. Alternatively, the state could petition the US Supreme Court for certiorari by early July.
Legal experts suggest the Supreme Court may wait for a “circuit split” before intervening. Such a split could emerge soon:
- The 9th Circuit: On April 16, 2026, a panel heard arguments in cases involving Robinhood, Kalshi, and Crypto.com against the Nevada Gaming Control Board.
- The 6th Circuit: Appeals are pending from conflicting district court decisions in Ohio and Tennessee.
Despite the lack of a current formal split, prediction markets currently assign a 64% probability that the Supreme Court will accept a sports event contract case by the end of 2026.
The fight in Congress and the courts
The executive branch has signaled strong support for the CFTC. On April 2, 2026, the CFTC and the Department of Justice jointly sued Arizona, Connecticut, and Illinois, asserting that their enforcement actions against prediction markets are preempted by federal law.
Meanwhile, in Congress, the Prediction Markets Are Gambling Act—introduced March 23, 2026, by Sens. John Curtis (R-Utah) and Adam Schiff (D-Calif.)—seeks to classify these contracts as gambling outside of CFTC jurisdiction. If passed, the bill would effectively override the 3rd Circuit’s interpretation.
Navigating a fragmented legal landscape
For now, prediction market platforms can continue offering sports-related event contracts within the 3rd Circuit (Delaware, New Jersey, Pennsylvania, and the US Virgin Islands). However, the legal landscape remains fragmented, requiring platforms to navigate a complex web of conflicting state and federal postures until a final judicial or legislative resolution is reached.
