On April 6, 2026, a divided panel of the U.S. Court of Appeals for the Third Circuit held that the U.S. Commodity Futures Trading Commission (“CFTC”) has exclusive jurisdiction over sports-related event contracts offered by Kalshi, becoming the first federal court of appeals to address the issue.[1] The Third Circuit held that Kalshi was likely to prevail on its arguments that: (1) sports-related event contracts are “swaps” under the Commodity Exchange Act (“CEA”); and (2) the CEA preempts the application of New Jersey’s gambling laws to sports-related event contracts.
The ruling represents a significant development in the ongoing litigation over whether the CFTC is the exclusive regulator of predictions markets. Given this decision, as well as the CFTC’s recent suits against Arizona, Connecticut, and Illinois, it seems increasingly likely that the question of the CFTC’s authority over prediction markets will ultimately be settled by the Supreme Court.
In this memorandum, we analyze the majority’s holding and situate this case within related litigation in other Circuits, including the potential for Supreme Court review of the CEA’s applicability to event contracts and whether the CEA preempts state regulation of event contracts.
Background
Kalshi operates a designated contract market (“DCM”) licensed by the CFTC in which individuals can trade “event contracts” (such DCMs are also known as “prediction markets”). Kalshi’s event contracts “identify an event with multiple possible outcomes, a payment schedule for those outcomes, and an expiration date,” and their value “is determined by market forces, which means its price fluctuates from the time of its creation to its expiration based on perceptions about the event’s likelihood.”[2]
The case arose after New Jersey’s Division of Gaming Enforcement sent Kalshi a cease-and-desist letter “stating that Kalshi’s listing of sports-related event contracts violated New Jersey’s constitution and gambling laws that prohibit betting on collegiate sports” and threatening “any measures available under New Jersey law” if Kalshi did not “promptly end its sports betting activities in New Jersey and void any existing wagers.”[3] Kalshi immediately commenced an action in the U.S. District Court for the District of New Jersey seeking a preliminary injunction against enforcement of New Jersey’s gambling laws, which the District Court granted.
The Majority Opinion
The panel majority reached the following conclusions in affirming the District Court’s grant of a preliminary injunction:
- Kalshi’s Sports-Related Events Contracts Are “Swaps” Under the Commodity Exchange Act: The opinion began with the question of whether Kalshi’s sports-related events contracts are “swaps” under the CEA and thus subject to the CFTC’s jurisdiction.
- Noting that the CEA defines “swap” to include “any agreement, contract, or transaction . . . that provides for any . . . payment[ ] or delivery . . . that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence,” the Third Circuit determined as a matter of statutory interpretation that “swap” includes event contracts. In so holding, the Court rejected New Jersey’s argument that Kalshi’s event contracts are not “swaps” covered by the Act “because the outcome of a sports game is not ‘joined or connected’ with a financial, economic, or commercial instrument or measure.”[4] Opining that New Jersey “raises the bar beyond what the Act requires,” the Court reasoned that, under the plain text of the CEA, “the relevant event or occurrence need only be ‘associated with a potential financial, economic, or commercial consequence,’” and stated that the “outcome of a sports event certainly can be associated with” such a consequence, pointing to the “numerous affected stakeholders, including sponsors, advertisers, television networks, franchises, and local and national communities.”[5] Ultimately, the opinion concluded: “[b]ecause Kalshi’s sports-related contracts are traded on a CFTC-licensed DCM and depend on event outcomes associated with economic consequences, they fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction.”[6]
- The opinion also rejected New Jersey’s argument that the Court’s holding would enable “anything from bingo games to ping-pong matches [to] fall under the CFTC’s jurisdiction.”[7] The Court noted that “[i]n such far-fetched scenarios, Congress’s express delegation to the CFTC and the Securities and Exchange Commission to ‘further define’ swaps would prove useful.”[8]
- The opinion did not give much interpretive weight to the “special rule” for event contracts implemented by the Dodd-Frank Act, which gives the CFTC discretionary power to review and prohibit six categories of contracts if it concludes that they are “contrary to the public interest,” including contracts that involve “gaming” or “other similar activity determined by the [CFTC], by rule or regulation, to be contrary to the public interest.”[9] The Court emphasized that, while the CFTC “has codified this power in a regulation” (i.e., Rule 40.11[10]), the CFTC “has not yet acted to review or prohibit any sports-related event contracts.”[11]
- The Commodity Exchange Act Impliedly Preempts State Regulation of Designated Contract Markets: The Third Circuit also agreed with the District Court that the CEA preempts state regulation of DCMs.
- First, the opinion agreed with the District Court “defining the scope of field preemption as the regulation of trading on a DCM (as a form of futures trading) rather than as gambling (a broader and traditional state-regulated field)” and affirmed the subsequent holding that the Act impliedly preempted state regulation of DCMs.[12] The Court explained that “the [CEA] grants the CFTC exclusive jurisdiction over ‘swaps . . . traded or executed on a [DCM],’ which includes Kalshi’s sports-related event contracts.”[13] The Court further noted that the CEA’s limiting principle—that it “shall [not] supersede or preempt . . . the application of any Federal or State Statute . . . to any transaction . . . that is not conducted on or subject to the rules of a registered entity”[14]—“does not apply” because “registered entities include DCMs.”[15]
- In addition to field preemption, the Third Circuit held that conflict preemption applies because New Jersey’s regulation of sports-related event contracts on CFTC-licensed DCMs “would create an obstacle to executing the [CEA].”[16] The Court found such an obstacle because enforcement of New Jersey’s laws “would prohibit Kalshi, which operates a licensed DCM under the exclusive jurisdiction of the CFTC, from offering its sports-related event contracts in New Jersey” and thereby create “exactly the patchwork [of state regulations] that Congress replaced wholecloth by creating the CFTC.”[17]
- In a footnote, the Court explained it did not address the parties’ arguments related to whether the CEA preempts all state gambling regulation (as opposed to state regulation of DCMs) “because Kalshi does not argue that the Act preempts all state gambling regulation.”[18]
The Dissent
In dissent, Judge Jane R. Roth did not decide the “thorny issue” of “whether Kalshi’s sports-event contracts fall within the statutory definition of swaps,” but asserted that such products are gambling, that the “presumption against preemption” applies, and thus that neither field nor conflict preemption precludes application of New Jersey’s gambling laws to Kalshi’s products.[19] Judge Roth, expressing the view that Kalshi’s products constituted gambling, observed that, historically, “gambling regulation has been largely left to the state legislatures” and that the “presumption against preemption applies with special force when Congress has legislated in a field traditionally occupied by the states.”[20]
Accordingly, Judge Roth remarked that field preemption did not apply because, while “federal law occupies the field of DCM trading,” “DCM trading is a subfield of futures trading” and the CFTC’s “occupation of the subfield of DCM trading is insufficient to preempt state gambling laws because of the presumption against preemption.”[21] She further noted that field preemption is inapplicable because the “existence of two savings clauses in the Act” is “evidence of Congress’s intent to allow a certain amount of complementary state regulation in this field.”[22]
Opining that conflict preemption also did not apply, Judge Roth explained that “New Jersey’s gambling laws arguably complement” congressional objectives because, through Dodd-Frank’s special rule, “Congress intended to prohibit gambling on DCMs, and the CFTC effectuated that intention through its enactment of Rule 40.11[].”[23] She additionally wrote that Kalshi could comply with both federal and New Jersey law.[24]
Related Litigation & Looking Ahead
This case is one of numerous cases working their way up through federal and state courts considering the CEA’s applicability to event contracts and whether the CEA prevents states from enforcing their gambling laws against event contracts.
The CFTC has participated in this litigation and weighed in on the side of preemption, asserting that it has “exclusive jurisdiction over CFTC-regulated [DCMs].”[25] On April 2, 2026, the CFTC sued Arizona, Connecticut, and Illinois alleging that the CEA preempts the application of those states’ gambling laws to event contracts offered by DCMs.[26] Earlier, in February 2026, the Commission filed an amicus brief in a pending Ninth Circuit case asserting its intention to prevent states from “re-characterizing swaps trading on DCMs as illegal gambling.”[27]
On the private side, including this case, prediction market participants have filed suits against 11 states alleging that the CEA preempts enforcement of state gambling laws to their event contracts.[28] In those actions, some courts have found preemption under the CEA, but others have not.[29] Notably, states themselves have leveraged their gambling laws to sue businesses offering event contracts,[30] with some states obtaining injunctive relief barring those businesses from offering event contracts in the state.[31] These cases are percolating up to the federal courts of appeal, including several currently pending before the Ninth Circuit,[32] and may result in divergent answers across Circuits.
In sum, the CEA’s applicability to event contracts and its preemptive effect on state gambling laws are live issues that have divided courts, are a genuine concern for the CFTC, and may generate a circuit split—teeing up the questions for Supreme Court resolution.
ENDNOTES
[1] Specifically, in KalshiEX LLC v. Flaherty, No. 25-1922, the Third Circuit affirmed the District Court’s grant of a preliminary injunction in favor of KalshiEX LLC (“Kalshi”).
[2] KalshiEX LLC v. Flaherty, No. 25-1922, Slip. Op. at 2 (3d Cir. Apr. 6, 2026).
[3] Id.
[4] Id. at 7 (quoting 7 U.S.C. § 1a(47)(A), (A)(ii)).
[5] Id. at 8.
[6] Id.
[7] Id.
[8] Id. (quoting 15 U.S.C. § 8302(d)(1)).
[9] Id. at 6 (quoting 7 U.S.C. §§ 7a-2(c)(5)(C)(i)(V)–(VI)).
[10] 17 C.F.R. § 40.11.
[11] Flaherty, Slip. Op. at 6–7.
[12] Id. at 9–11.
[13] Id. at 10 (quoting 7 U.S.C. § 2(a)(1)(A)).
[14] 7 U.S.C. § 16(e)(1)(B)(i).
[15] Flaherty, Slip. Op. at 10.
[16] Id. at 12–14.
[17] Id. at 13.
[18] Id. at 10 n.2.
[19] Flaherty, No. 25-1922, Slip. Op. at 2–3 (Roth, J., dissenting).
[20] Id. at 4 & n.12, 7–8.
[21] Id. at 8–10.
[22] Id. at 12–14.
[23] Id. at 17–19.
[24] Id. at 15–16.
[25] Brief for CFTC as Amicus Curiae Supporting Appellant at 2, N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir. Feb. 17, 2026), available here.
[26] CFTC, CFTC Sues Trio of States to Reaffirm its Exclusive Jurisdiction Over Prediction Markets (Apr. 2, 2026), available here; see also United States v. Arizona, No. 2:26-cv-02246 (D. Ariz.); United States v. Connecticut, No. 3:26-cv-00498 (D. Conn.); United States v. Illinois, No. 1:26-cv-03659 (N.D. Ill).
[27] Brief for CFTC as Amicus Curiae Supporting Appellant at 2, N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir. Feb. 17, 2026), available here.
[28] These states are Arizona, Connecticut, Iowa, Maryland, Michigan, Nevada, New Jersey, New York, Ohio, Tennessee, and Utah. KalshiEX, LLC v. Hendrick, No. 2:25-cv-00575 (D. Nev. Mar. 28, 2025); KalshiEX LLC v. Flaherty, No. 1:25-cv-02152 (D.N.J. Mar. 29, 2025); KalshiEX LLC v. Martin, No. 1:25-cv-01283 (D. Md. Apr. 21, 2025); KalshiEX LLC v. Williams, No. 1:25-cv-08846 (S.D.N.Y. Oct. 28, 2025); KalshiEX LLC v. Schuler, No. 2:25-cv-01165 (S.D. Ohio Oct. 7, 2025); KalshiEX LLC v. Cafferelli, No. 3:25-cv-02016 (D. Conn. Dec. 3, 2025); KalshiEX LLC v. Orgel, No. 3:26-cv-00034 (M.D. Tenn. Jan. 9, 2026); KalshiEx LLC v. Cox, No. 2:26-cv-00151 (D. Utah Feb. 23, 2026); KalshiEX LLC v. Bird, No. 4:26-cv-00109 (S.D. Iowa Mar. 11, 2026); KalshiEX LLC v. Johnson, No. 2:26-cv-01715 (D. Ariz. Mar. 12, 2026); QCX, LLC v. Nessel, No. 1:26-cv-00710 (W.D. Mich Mar. 4, 2026).
[29] Compare KalshiEX LLC v. Orgel, No. 3:26-CV-00034, 2026 WL 474869, at *7–10 (M.D. Tenn. Feb. 19, 2026) (finding Kalshi’s sports event contracts are swaps under the CEA and conflict preemption applies to Tennessee’s gambling laws), and KalshiEX LLC v. Flaherty, 2025 WL 1218313, at *6 (D.N.J. Apr. 28, 2025), with N. Am. Derivatives Exch., Inc. v. Nevada on Rel. of Nev. Gaming Control Bd., No. 2:25-CV-00978, 2025 WL 2916151, at *9 (D. Nev. Oct. 14, 2025) (finding certain event contracts are not swaps under the CEA), and KalshiEX LLC v. Martin, 793 F. Supp. 3d 667, 676–86 (D. Md. 2025) (finding the CEA did not preempt Maryland’s gambling laws), and KalshiEX, LLC v.Hendrick, 2025 WL 3286282, at *3 (D. Nev. Nov. 24, 2025) (holding that “event contracts that turn on the outcomes of sporting events are not swaps”), and KalshiEX LLC v.Schuler, No. 2:25-cv-01165, 2026 WL 657004, at *4–10 (S.D. Ohio Mar. 9, 2026) (finding sports-event contracts are not swaps within the CFTC’s exclusive jurisdiction and, alternatively, concluding that the CEA does not preempt Ohio’s gambling laws).
[30] Nevada ex rel. Nev. Gaming Control Bd. v. KalshiEX, LLC, No. 260000050-1B (Nev. 1st Judic. Dist.); Nevada ex rel. Nev. Gaming Control Bd. v. Blockratize, No. 26-OC-00012-1B (Nev. 1st Judic. Dist.); Nevada v. Coinbase Financial Markets, Inc., No. 26-OC-0030-1B (Nev. 1st Judic. Dist.); Commonwealth of Massachusetts v. KalshiEX LLC, No. 2584CV02525 (Mass. Super. Ct.); Nessel v. KalshiEX LLC, No. 1:26-cv-00731 (W.D. Mich.); State of Washington v. KalshiEX, LLC, No. 2:26-cv-01062 (W.D. Wash.).
[31] E.g., Commonwealth v. KalshiEX, LLC, No. 2584CV02525, 2026 BL 19365, at *4 (Mass. Super. Ct. Jan. 20, 2026); see also Nate Raymond, Nevada judge extends ban on Kalshi operating prediction market in state, Reuters (Apr. 3, 2026), available here.
[32] E.g., Blue Lake Rancheria v. Kalshi, Inc., No. 25-7504 (9th Cir.); N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir.); KalshiEX, LLC v. Hendrick, No. 25-7516 (9th Cir.).
This post is based on a Paul, Weiss, Rifkind, Wharton & Garrison LLP memorandum, “A Divided Third Circuit Holds That the CFTC Has Exclusive Jurisdiction Over Sports-Related Event Contracts,” dated April 6, 2026, and available here.