A federal appeals court has ruled that New Jersey cannot regulate sports bets on prediction markets because the US Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction. This decision means that Kalshi, a company registered with the CFTC as a designated contract market (DCM), is exempt from state laws in this sector.

The case began when New Jersey sent a cease-and-desist letter to Kalshi, accusing it of offering unauthorized sports wagers. The court’s ruling upholds a preliminary injunction issued by a district court last year, which prevented the New Jersey Division of Gaming Enforcement from enforcing its state law against Kalshi's operations.

The CFTC has exclusive jurisdiction over DCMs under the Commodity Exchange Act. This means that federal laws take precedence over state regulations in this area, preempting any state laws that might interfere with swaps traded on designated contract markets. For Kalshi, its sports-related event contracts are considered ‘swaps’ and thus fall under CFTC jurisdiction.

The decision has significant implications for both states and companies operating in prediction markets, potentially leading to a shift where federal regulations become the norm rather than the exception. This could pave the way for more widespread use of prediction markets as a legal betting platform, free from state-level restrictions.