An appeals court handed Kalshi and its prediction market peers a major victory on Monday, ruling that New Jersey does not have explicit authority over sports-related event contracts offered by entities regulated by the Commodity Futures Trading Commission.

On Monday, in the U.S. Court of Appeals for the Third Circuit, a panel of judges ruled 2-1 and said that New Jersey gaming regulators cannot block Kalshi from offering those contracts in the state. 

Kalshi sued New Jersey and other states last year after it received cease-and-desist orders prohibiting it from offering sports-related contracts. The predictions market argued that it is a federally regulated commodities exchange, a designated contract market (DCM) and that the Commodity Exchange Act supersedes states' authorities.

Meanwhile, New Jersey said that offering sports contracts violated its gambling laws. 

"New Jersey argues that the Act’s savings clause carveouts preserve state jurisdiction over sports-related event contracts on CFTC-licensed DCMs," according to the opinion. "But the clear text of the Act says otherwise. Both carveouts follow the Act’s grant of CFTC exclusive jurisdiction over swaps."

The CFTC has sided with prediction markets and has argued that it has "exclusive jurisdiction" over prediction markets. The agency went so far as to sue three states last week — Arizona, Illinois and Connecticut — accusing them of trying to shut down "federally regulated DCMs." 

The circuit judges appeared to agree with that sentiment on Monday. 

"Congress gave the CFTC exclusive jurisdiction over trades on DCMs, provided for continued state regulation of trades conducted off DCMs, and recognized that while event contracts could involve gaming, the CFTC has discretionary power to review and prohibit those contracts," according to their opinion. 

The dissenting judge called Kalshi's actions a "performative sleight meant to obscure the reality that Kalshi’s products are sports gambling."

"Because Kalshi is facilitating gambling, it can be subjected to state regulation," the judge said. 

Kalshi CEO Tarek Mansour called the opinion a "big win."

"People use prediction markets because they’re more fair, transparent, and reward being right," Mansour said in a post on X. "Free markets work. We should keep them that way."

Investment bank TD Cowen's Jaret Seiberg called the opinion a "temporary win for Kalshi" and said it's up to the Supreme Court to decide who has jurisdiction over sporting events, which could take years.

"We still believe it could take another year before this question is fully before the justices," said Seiberg, managing director at TD Cowen’s Washington Research Group. "As we have previously written, we give the states the edge in this fight as states historically have regulated gambling. We believe that will matter to a majority on the Supreme Court."

Updated at 5 p.m. UTC to include insight from TD Cowen