Here is the business model of a sports prediction market, stated as plainly as I can manage. You let people bet on football games. When a state says that this is sports betting, which needs a state license, you say no, it isn’t: it is a swap, a federally regulated derivatives contract traded on a federally licensed exchange, and only the federal Commodity Futures Trading Commission gets to regulate it. Then you hope the judges agree.
They mostly don’t. On Tuesday, November 3, a three-judge panel of the US Court of Appeals for the Second Circuit refused Kalshi’s request to stop New York and Connecticut from enforcing their gambling laws against it while its appeals go forward. As Jon Brodkin reported for Ars Technica, the same panel also turned down Coinbase, whose own case against Connecticut raised identical legal questions. The order was short:
Upon due consideration, it is hereby ORDERED that the motions are DENIED because Appellants have failed to make the required showing that an injunction pending appeal is warranted.
That was all of it. According to SBC Americas, the panel ruled hours after hearing argument from lawyers for Kalshi, Coinbase, New York, Connecticut and the CFTC. Three appeals were heard together: Kalshi against officials of the New York State Gaming Commission, coming up from the Southern District of New York, where District Judge Analisa Torres ruled against it in July; Kalshi against Connecticut’s Department of Consumer Protection commissioner, Bryan T. Cafferelli; and Coinbase Financial Markets against Connecticut Attorney General William Tong. In Connecticut, a federal judge denied Kalshi a preliminary injunction in August after finding that its sports contracts were not swaps under the Commodity Exchange Act and that federal law did not push aside the state’s traditional power over sports wagering. Connecticut’s attorney general then sued Kalshi in state court that same month.
What an injunction pending appeal is for
It is worth being precise about what Kalshi lost, because it was not the appeal itself. An injunction pending appeal is emergency relief. You lost in the lower court, you are appealing, and you ask the appeals court to freeze things in the meantime. To get that you generally have to show the court that you will probably win and that you will be badly hurt if it makes you wait. Two appellate judges heard Kalshi make that case and said, in effect, not convincingly. The appeals carry on. Reports on the ruling note that it does not order the platforms to stop trading or to close out existing positions. Kalshi and Coinbase could also ask the full Second Circuit to rehear the decision en banc.
But losing the freeze matters, because of the state cases. Those are on hold while the appeals play out, and Kalshi is trying to move both of them into federal court. Without an injunction, nothing stops a state judge from ruling against it if they come back. Daniel Wallach, a gaming lawyer who follows these cases, told Gaming America that nine federal rulings within the Second Circuit have now gone against the prediction markets and the CFTC, and that New York and Connecticut are “one remand order away from resuming state-court enforcement and likely obtaining preliminary injunctions.” The publication reckons the two states could block Kalshi and other prediction markets by early 2027.
Is a football game a swap?
This is the whole fight. Federal law defines a swap to include a contract whose payment “is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.” If a bet on Sunday’s game fits that description, and it trades on a CFTC-licensed designated contract market, which Kalshi is, then the CFTC’s jurisdiction is exclusive and the states have no say. If it doesn’t fit, it looks a lot like a bet, and the states regulate bets.
The phrase doing the work is “potential financial, economic, or commercial consequence.” I suppose you could say that any football game has commercial consequences for somebody: the stadium’s concession stands, the team’s merchandise sales, and of course the person who has money riding on the result. That is roughly the trouble. A definition loose enough to cover a field goal covers nearly everything, and that is why state attorneys general keep arguing, in substance, that Kalshi can’t escape gambling law simply by saying it doesn’t offer gambling. As rews has written before, the 2010 statute Kalshi relies on contains a clause originally meant to keep this sort of contract out.
The Third Circuit bought Kalshi’s argument. In April it held that New Jersey cannot regulate sports bets on prediction markets, writing that “Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM [designated contract market], so the CFTC has exclusive jurisdiction.” In September, a unanimous Sixth Circuit panel went the other way and said Ohio and Tennessee could enforce their gambling laws. Courts that have ruled against Kalshi have found that at least some of its contracts are not swaps, and that the law leaves room for states and the federal government to regulate prediction markets side by side.
So you have a circuit split, which is how cases end up at the Supreme Court. New Jersey has asked the justices to reverse its Third Circuit loss, and 39 other states plus the District of Columbia have filed a brief supporting it. That makes 41 jurisdictions, counting New Jersey, lined up on one side.
The federal government is on the other side
On the other side is the Trump administration. The CFTC, which says it alone may regulate platforms like Kalshi and Polymarket, has sued ten states for trying to enforce their gambling laws against prediction markets: Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, Utah and Wisconsin. New York, which separately sued Polymarket in September, is on that list. So is Connecticut.
Which means the two states that just won in the Second Circuit are being sued, in other courtrooms, by the federal regulator that argued against them in this one. The regulator is arguing that it, and nobody else, should be in charge of the industry it oversees. It keeps finding judges who would rather leave the bookies to the states.