Federal Court Backs Kalshi, Blocks New Jersey Cease-and-Desist Order

A New Jersey federal judge has sided with prediction market operator Kalshi, handing them a significant – if only temporary – legal victory in the Garden State.

As part of his ruling, Judge Edward Kiel of the US District Court for the District of New Jersey granted Kalshi a temporary injunction against the New Jersey Division of Gaming Enforcement (NJDGE). The decision granted blocks the state from enforcing its earlier cease-and-desist order issued to prevent Kalshi’s sports event futures contracts.

What the Kalshi Ruling Means for New Jersey

 The Kalshi New Jersey case ultimately centers on whether sports prediction markets are subject to the jurisdiction of the Commodity Futures Trading Commission (CFTC) or whether they must adhere to state-level gambling laws.

Already regulated by the CFTC, Kalshi maintains that its sports-related contracts are legitimate financial platforms as opposed to traditional gambling formats. Judge Kiel wrote in his ruling, “I am persuaded that Kalshi’s sports-related event contracts fall within the CFTC’s exclusive jurisdiction and am unconvinced by the defendant’s arguments to the contrary.”

The NJDGE argues that Kalshi’s activities are, in fact, a direct violation of New Jersey’s gambling laws through the provision of unlicensed sports betting products. Judge Kiel stated that sporting events carry “financial, economic, or commercial consequence,” dismissing NJDGE’s claim that they fall outside this federal oversight.

Kalshi’s victory in New Jersey is the second federal court ruling this month, following a similar judgment in Nevada. Both rulings have strengthened Kalshi’s national legal footing and allowed it to continue operating in all 50 states without further state-level interference for the time being. 

Kalshi’s legal momentum in the court system illustrates the power struggle between federal regulators and states looking to preserve their gambling tax revenues.

Implications for Sportsbooks and State Tax Revenues

Last year, New Jersey alone generated over $138.3 million in online sports betting tax revenue. This income will undoubtedly be eroded if prediction markets like Kalshi’s continue to operate untaxed and unregulated at the state level.

The ruling affects state regulators and firms such as DraftKings and FanDuel, which have already invested heavily in obtaining state licenses to operate. Conventional sportsbooks may be forced to compete with federally regulated platforms such as Kalshi, the economics of which could cannibalize the sports betting industry.

Aside from giving Kalshi the green light to continue operating in Nevada and New Jersey, the joint rulings have inflamed the debate about the regulatory uncertainty of sports event contracts at the federal level.

At its core is CFTC Rule 40.11(a)(1), which prohibits contracts related to “gaming” or activities that are considered unlawful under current state or federal law. In addition to the confusion, the CFTC also recently cancelled planned roundtables on sports-related contracts without giving any explanation.

Other states that have issued cease and desist orders to Kalshi include Ohio, Montana, Pennsylvania, and Maryland. The prediction market platform has already filed legal motions in the latter.

Additionally, legal experts now believe that these early court victories could provide the foundation for the long-term viability of prediction markets in the US.

Nevertheless, with millions in state tax revenues and regulatory controls under threat, the conflicting arguments circling the state gambling authorities and federally regulated prediction markets will continue to intensify.

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 A New Jersey federal judge has sided with prediction market operator Kalshi, handing them a significant – if only temporary – legal victory in the Garden State. As part of his ruling, Judge Edward Kiel of the US District Court for the District of New Jersey granted Kalshi a temporary injunction against the New Jersey
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