Key Takeaways
- In March 2025, New Jersey’s gambling regulator ordered Kalshi to cease operations in the state.
- After Kalshi sued over the order, a three-judge panel of the Third Circuit Court of Appeals heard arguments over regulatory jurisdiction.
- A good outcome for Kalshi could also favor Polymarket as it prepares to re-enter the U.S. market.
With prediction markets increasingly filling a niche once dominated by traditional sportsbooks, jurisdictional battles over who gets to regulate the space are making their way through the courts.
The latest clash between Kalshi and the New Jersey Division of Gaming Enforcement (NJDGE) could determine whether state gambling regulators have a role in oversight, or if it will be left to the Commodities and Futures Exchange Commission (CFTC).
Is Sports Prediction Trading Gambling?
As prediction markets like Kalshi and Polymarket have gained popularity in recent times, sports event contracts have emerged as a major driver of adoption.
Unlike traditional, fixed-odds sports betting, event contracts let users buy and sell a contract that only pays out if a prediction proves to be correct.
Because the price of contracts reacts dynamically to demand, odds fluctuate depending on the conditions of play. For example, when Baltimore Ravens quarterback Lamar Jackson won first-team All-Pro honors.
This directly impacted the price of Polymarket contracts predicting who would win the NFL’s MVP award in 2024.
According to research by the American Gaming Association, 85% of Americans believe sports events contracts are a form of gambling, not financial instruments.
However, public opinion doesn’t necessarily reflect the legal landscape.
Court Considers Regulatory Jurisdiction
In March 2025, the NJDGE accused Kalshi of offering unauthorized sports wagers and ordered it to cease operations in the state.
In a lawsuit objecting to the order, Kalshi argued that the NJDGE had no authority over contracts offered on its platform, which was certified by the CFTC as a designated contract market in 2020.
“The CFTC possesses exclusive jurisdiction over futures, options, and swaps traded on designated contract markets,” the lawsuit stated.
Judge Edward S. Kiel granted a preliminary injunction against the CFTC’s order. On Wednesday, Sep. 10, a three-judge panel of the Third Circuit Court of Appeals heard arguments over whether to keep the injunction in place.
Defining a Swap Contract
At the heart of Kalshi vs. NJDGE is the question of what counts as a swap contract under federal commodities law.
The panel explored whether federal law fully “occupies the field” for designated contracts market trading, or, at minimum, whether New Jersey’s rules conflict with Congress’s objective in the Dodd-Frank Act to preempt state-federal conflicts.
Referring to the legislation, Judge David Porter observed that the legal definition of a swap “is quite broad.” While lawyers for the NJDGE argued CFTC-regulated swaps should be limited to strictly financial events, “that’s not in the statute,” he observed.
As the case progresses, judges appear to be skeptical of New Jersey’s bid to block Kalshi. However, they may still look to issue a ruling that sets some restrictions on what type of events prediction markets can cater to.
Polymarket Preparing for U.S. Comeback
With a more clear legal regulatory landscape emerging from the Kalshi case, prediction market rival Polymarket is looking to re-enter the U.S. market.
While it is among the most popular globally, the platform has been unavailable to U.S. users since early 2022, when it settled a CFTC lawsuit for operating an unregistered event-based binary options market.
In July 2025, however, Polymarket acquired QCX, a CFTC-registered derivatives exchange and clearinghouse. The move was widely viewed as portending a reentry into the U.S. market under CFTC oversight.
In the latest sign that a U.S. launch is imminent, on Sep. 3, the CFTC issued a no-action letter covering event contracts executed and cleared via QCX.
The no-action letter reduces immediate regulatory burdens related to reporting and recordkeeping. This gives Polymarket legal cover and a more leeway to scale its U.S. operations without running afoul of certain CFTC requirements.
Together, the CFTC’s green light and a favorable ruling from the Third Circuit would significantly ease Polymarkets path to U.S. operations, lowering both compliance costs and legal risks.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
