Kalshi Shrugs Off NJ Gaming Regulator as Judge Defers to Feds

Yahoo

29-04-2025

A New Jersey federal judge on Wednesday granted Kalshi a preliminary injunction that halts the New Jersey Division of Gaming Enforcement from blocking the derivatives exchange and prediction market operator from operating in the Garden State.
The ruling, which was issued by U.S. District Judge Edward S. Kiel, follows a similar win for Kalshi in Nevada earlier this month. U.S. District Judge Andrew P. Gordon blocked the Nevada Gaming Commission from using sports betting prohibitions against Kalshi.
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In both cases, the central legal issue is preemption, meaning whether Congress has preempted states from using state laws–including sports betting ones–to regulate a business or activity. Article VI, Clause 2 of the U.S. Constitution contains the Supremacy Clause, which establishes that the Constitution and laws of the U.S. 'shall be the supreme Law of the Land.' Kiel and Gordon concluded that New Jersey and Nevada, respectively, are preempted when it comes to Kalshi's sports-based event contracts.
Kalshi's sports-related contracts in New Jersey were initially offered in January. Kalshi listed such contracts as the 'buying or selling on which team will advance in a given round of a college basketball tournament.' New Jersey regulators informed Kalshi it appeared to be violating the New Jersey Sports Wagering Act, which requires companies to obtain a license to lawfully offer sports wagering, and the New Jersey Constitution, which makes betting on New Jersey college teams or on college games played in New Jersey illegal.
Kalshi disagreed. The company informed New Jersey regulators that the state is sidelined on this topic because Kalshi has already been cleared by federal Commodity Futures Trading Commission (CFTC). The CFTC is an independent federal agency created through a federal statute, the Commodity Exchange Act of 1936 (CEA). Importantly here, the CFTC enjoys exclusive jurisdiction to regulate commodities and futures on designated exchanges.
Five years ago, CFTC certified Kalshi as a 'designated contract market,' meaning it could offer event contracts. The company offered contracts about political events, including whether the Democrats or Republicans would gain a majority in the House or Senate. Earlier this year, Kalshi began to offer sports-related contracts. As Kiel stresses, 'the CFTC has not reviewed or prohibited Kalshi's sports-related event contracts despite possessing the authority to do so.' Kalshi has relied on the absence of a CFTC prohibition to reason it has the CFTC's permission.
Represented by Gurbir S. Grewal and other attorneys from Milbank, Kalshi maintains that New Jersey is preempted because federal law 'makes clear that the CFTC has exclusive jurisdiction over accounts, agreements, and transactions traded on designated contract markets.' The company also asserts that Congress wanted a federal entity 'to bring futures markets under a uniform set of regulations' rather than each state adopting its own system that might conflict with one another. Kalshi maintains that subjecting its sports-related event contracts to New Jersey law would conflict with the CFTC and, more broadly, with the constitutionally-backed authority of the federal government.
New Jersey sees it differently. It argued to Kiel that Kalshi's preemption theory ignores certain key features. Most notably, New Jersey maintains the CEA's 'exclusive-jurisdiction provision' doesn't contemplate the kind of sports-related contracts offered by Kalshi because, as Kiel summarized, 'they are not associated with a potential financial, economic, or commercial consequence and state law still applies to contracts that do not fall within CFTC's exclusive jurisdiction.'
Kiel concluded that Kalshi's interpretation of the law made more sense. The CFTC could attempt to stop Kalshi from offering sports-related event contracts, but that is for the CFTC, and not a state, to decide under the federal agency's exclusive jurisdiction. Kiel observed that 'by their very existence' Kalshi's sports-related event contracts are evidence of the CFTC's 'exercise of its discretion and implicit decision to permit them.'
Kiel also rejected New Jersey's argument that 'sporting events are without potential financial, economic, or commercial consequence.' He noted as persuasive Kalshi referencing 'a few recent examples of the economic impact of sporting events in television, advertising, and local communities.' While sports-related events contracts are fundamentally about sports and are thus topically different from which political party will control Congress after the 2026 midterms or whether Jerome Powell will still be Chair of the Federal Reserve come this fall, a team or player winning a tournament has—like political events—various impacts on media, broadcasting and related fields.
Lastly, Kiel found compelling Kalshi's argument that it will suffer irreparable harm unless the judge issues an injunction. Kiel noted that Kalshi 'faces credible threat of civil and criminal liability' from New Jersey regulators. He also pointed out the looming threat of legal woes 'imperils the reputation Kalshi has cultivated over several years.' Kiel underscored how one of Kalshi's business partners 'has already chosen to not move forward with listing Kalshi event contracts in New Jersey' due to fear of Kalshi's legal problems and associating with such a company.
New Jersey can appeal Kiel's order to the U.S. Court of Appeals for the Third Circuit.
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