Kalshi secured a major legal victory this week as a federal judge granted the prediction market operator a preliminary restraining order and a temporary injunction against the New Jersey Division of Gaming Enforcement (NJDGE).
The development follows cease-and-desist orders issued by the regulator last month against Kalshi and Robinhood, both offering sports event futures contracts.
The New Jersey action is part of a broader regulatory push against prediction markets across multiple states.
However, Kalshi has now prevailed in two separate federal court proceedings, first in Nevada and now in New Jersey.
These wins bolster Kalshi’s assertion that it can offer sports event contracts under federal oversight without requiring additional state licensing.
Kalshi’s legal filing argued that it operates under the jurisdiction of the Commodity Futures Trading Commission (CFTC), which regulates futures markets at the federal level.
According to Kalshi, this federal oversight should preclude any need to comply with individual state gambling regulations.
The NJDGE, on the other hand, maintained that Kalshi’s sports contracts fall outside the CFTC’s authority because they do not involve traditional financial commodities or securities.
The regulator emphasised that Kalshi was making sports contracts available to residents without holding a state betting licence, an action it claimed violated state law.
The state contended that sporting events should not be considered valid subjects for federally regulated futures contracts.
It argued that these events lacked the financial and commercial characteristics typical of regulated markets.
Judge Edward Kiel disagreed with the NJDGE’s position. In his ruling, he stated that the contracts offered by Kalshi fall within the scope of the CFTC’s jurisdiction.
He also rejected the argument that sports events are devoid of financial consequences, indicating that the nature of these contracts met the necessary thresholds for federal regulatory oversight.
A big win for Kalshi
This legal outcome marks another important precedent for the prediction market industry.
By prevailing in New Jersey, Kalshi strengthens its case that sports futures contracts can be offered without navigating the patchwork of state-by-state gambling laws.
However, the victory does not mark the end of its regulatory challenges.
Kalshi is simultaneously contesting cease-and-desist orders in other states.
In Maryland, after receiving similar enforcement actions, Kalshi filed for a preliminary restraining order and a temporary injunction in federal court, mirroring its strategy in Nevada and New Jersey.
In Ohio, regulators recently issued cease-and-desist orders against Kalshi, Robinhood and Crypto.com, and legal action in that state appears imminent.
These legal disputes carry broader financial implications. If companies like Kalshi succeed in shielding their operations from state regulations, those states could experience a decline in taxable revenue from traditional sports betting.
State-regulated sportsbooks contribute significant funds through licensing fees and taxes, which could be reduced if consumers migrate to federally regulated prediction markets that are not subject to state controls.
Moreover, the ongoing court battles highlight the considerable uncertainty that surrounds federal and state jurisdiction over new types of financial products tied to non-traditional markets like sports outcomes.
Federal commodities law was originally designed to regulate tangible goods and financial securities, leaving ambiguity about whether event-based contracts fit within its framework.
Even though Kalshi has gained favourable rulings so far, the legal debate over how sports futures should be classified and regulated is likely to continue for some time.
Judges, regulators, and legislators may ultimately need to clarify the boundaries between state gambling oversight and federal commodities regulation, particularly as prediction markets expand their offerings and audience.
Kalshi’s legal momentum suggests it will continue to challenge state regulatory authority aggressively.
