New Jersey has decided not to seek a rehearing in its legal dispute with Kalshi, following a federal appeals court ruling that limited the state’s authority over the company’s operations.
U.S. Gaming Law and Sports Betting Attorney Daniel Wallach noted that the decision not to pursue a rehearing is notable given the divided opinion in the appellate ruling. In a LinkedIn post, he pointed out that the presence of a dissenting judge could have provided grounds for further review at the same level. Instead, the state appears to be weighing a direct appeal to the Supreme Court, with a filing deadline that may still be extended.
The case stems from a broader dispute over how prediction markets should be classified and regulated in the United States.
Appeals court sides with Kalshi; contracts ruled as financial instruments
Earlier in April, the federal appeals court upheld an earlier injunction in favour of Kalshi, preventing New Jersey regulators from enforcing state gambling laws against the platform. The court said it found that Kalshi’s event-based contracts qualify as financial instruments, thereby subjecting them to oversight by the Commodity Futures Trading Commission (CFTC).
This classification places prediction markets within the federal regulatory framework rather than state-level gaming laws. New Jersey had argued that the contracts resemble sports betting products and should be regulated accordingly by the state.
Multiple jurisdictions pursue legal action
Despite the ruling, several U.S. states remain opposed to prediction market platforms. Arizona, Connecticut, and Illinois have taken action over the past year, issuing cease-and-desist orders and raising concerns about unregulated gambling activity.
Arizona has gone further by filing criminal charges, alleging that such platforms operate outside legal betting frameworks. At the same time, federal regulators have stepped in to defend their jurisdiction. The CFTC has initiated legal proceedings against states that attempt to regulate prediction markets. The Commission argues that these products fall within its jurisdiction.
Split ruling shows legal uncertainty
The appeals court decision was not unanimous, reflecting continued disagreement over the nature of prediction markets. While the majority concluded that the contracts are financial products, a dissenting opinion argued that they are effectively indistinguishable from sports bets.
Expert see structural divide
Industry analysis points to a deeper distinction between prediction markets and traditional sports betting. According to Alice Li of Foresight Ventures, the difference lies in how the two models function rather than how large they become.
Prediction markets convert real-world outcomes into tradable contracts that reflect information and probability, while Li said sports betting is structured around entertainment and wagering. Even as sports-related contracts drive much of the activity on platforms such as Kalshi and Polymarket, she said that the underlying design remains different.
Research from Foresight Ventures indicates rapid growth in the sector, with a large share of activity concentrated between Kalshi and Polymarket. Despite this overlap, the two models are expected to evolve in parallel rather than merge, with prediction markets expanding into areas such as economics and policy while betting remains focused on consumer entertainment.
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