The US Third Circuit Court of Appeals has delivered a crucial victory for Kalshi, ruling 2-1 to maintain a preliminary injunction that prevents New Jersey from enforcing its gambling laws against the company. This decision marks a significant moment in the ongoing debate over whether federal regulations governing prediction markets take precedence over state gambling laws.
In her dissent, Judge Jane Richards Roth questioned the intentions of Congress regarding the Dodd-Frank reforms, arguing that the Commodity Futures Trading Commission (CFTC) was never meant to interfere with states' rights to regulate gambling when the Commodity Exchange Act (CEA) was amended in 2010.
Roth pointed out that when Congress assigned jurisdiction over swaps to the CFTC, there was no explicit indication that federal law should override the historical powers of states in gambling regulation. She emphasized that the CFTC lacks expertise in the sports gaming sector, suggesting that if Congress had intended for the CFTC to function as a national sports gaming authority, it would have articulated that intention more clearly.
Roth referenced a discussion in the congressional record between Senators Dianne Feinstein and Blanche Lincoln regarding the CEA's Dodd-Frank amendments. Lincoln asserted that Congress empowered the CFTC to utilize the CEA’s Special Rule to block contracts that are “contrary to the public interest,” particularly those related to gaming, terrorism, assassination, and war. This amendment is the sole provision in the CEA that mentions gaming.
Lincoln explained that the Commission should have the authority to prevent derivatives contracts that primarily facilitate gambling through “event contracts.” She noted that creating such contracts around major sporting events, like the Super Bowl or the Kentucky Derby, would serve no legitimate commercial purpose and would be intended solely for gambling.
Commenting on the dissent, NPR’s Bobby Allyn remarked that it provided a rare insight into lawmakers' intentions during the legislative process.
Roth’s dissent raises concerns that state-regulated gambling could be at risk if federal regulations are ultimately determined to override state laws.