CEA Exclusive Jurisdiction Preempts State Gambling Bans as Applied to CFTC-Licensed DCM Sports Event Contracts

1. Introduction

This Third Circuit decision addresses a fast-emerging collision between (i) state gambling prohibitions—here, New Jersey’s constitutional and statutory restrictions on collegiate sports betting—and (ii) federally regulated “event contracts” traded on a Commodity Futures Trading Commission (“CFTC”)-licensed designated contract market (“DCM”).

Parties. Plaintiff-appellee KalshiEX LLC (“Kalshi”) operates an online CFTC-licensed DCM and lists event contracts whose value depends on the outcome of specified events. Defendants-appellants include New Jersey’s Division of Gaming Enforcement and associated state officials and entities.

Triggering dispute. After Kalshi began offering sports-related event contracts, New Jersey issued a cease-and-desist letter asserting that Kalshi’s listings violated New Jersey’s constitution and gambling laws (including prohibitions on betting on collegiate sports) and threatened civil and criminal enforcement. Kalshi sought a preliminary injunction in federal court.

Central issue. Whether the Commodity Exchange Act (“the Act”)—particularly its grant of “exclusive jurisdiction” to the CFTC over swaps traded or executed on a DCM—preempts New Jersey’s gambling laws and constitutional restrictions as applied to Kalshi’s sports-related event contracts.

2. Summary of the Opinion

The Third Circuit affirmed the preliminary injunction. It held that Kalshi demonstrated a “reasonable chance of success” on the merits because the Act likely preempts New Jersey’s attempted enforcement against Kalshi’s sports-related event contracts listed and traded on a CFTC-licensed DCM. The court found both:

• Field preemption: the Act occupies the field of regulating swaps traded or executed on DCMs; and
• Conflict (obstacle) preemption: state enforcement would frustrate Congress’s objective to avoid a patchwork of state regulation over futures/derivatives markets.

It also agreed that Kalshi satisfied irreparable harm (threatened civil/criminal enforcement; loss of business and goodwill), and that the public interest favored enforcing federal law if state law was preempted. Judge Roth dissented.

3. Analysis

3.1 Precedents Cited

A. Preliminary injunction framework

• Mallet and Co. Inc. v. Lacayo and Bimbo Bakeries USA, Inc. v. Botticella: provided the Third Circuit’s review standards (fact findings for clear error; legal conclusions de novo; ultimate grant for abuse of discretion) and reinforced that likelihood of success and irreparable harm are the key threshold factors.
• Reilly v. City of Harrisburg: supplied the articulation of the preliminary injunction test and the “more likely than not” framing for irreparable harm.
• Del. State Sportsmen's Ass'n v. Del. Dep't of Safety & Homeland Sec. and Nken v. Holder: supported the “merger” of equities and public interest factors when the government is the opposing party.
• Ramsay v. Nat'l Bd. of Med. Exam'rs: anchored the definition of irreparable harm as harm not fully redressable after trial.
• Morales v. Trans World Airlines, Inc.: supported the proposition that imminent enforcement can make legal remedies inadequate.
• Kos Pharms., Inc. v. Andrx Corp.: recognized reputational harm, loss of trade, and loss of goodwill as irreparable.
• N.J. Retail Merchs. Ass'n v. Sidamon-Eristoff: supported the public-interest proposition that enforcement of an unconstitutional (or federally preempted) law is not in the public interest.

B. Statutory interpretation and “swap” classification

• United States v. Johnson: invoked for the “begin with the text” approach to statutory interpretation.
• United States v. Lopez: used to reject speculative “inference upon inference” hypotheticals about boundless federal jurisdiction.

C. Federal preemption doctrine

• Murphy v. Natl. Collegiate Athletic Ass'n: supplied a modern summary of preemption principles and the concept of field preemption as Congress occupying a field “so comprehensively” as to leave no room for state law. (The dissent separately relied on Murphy v. NCAA for the proposition that states are free to regulate sports gambling absent direct federal regulation.)
• Klotz v. Celentano Stadtmauer & Walentowicz LLP and Kansas v. Garcia: emphasized that preemption analysis must be grounded in the text and structure of the federal statute.
• Crosby v. Nat'l Foreign Trade Council: cited for the idea that field and conflict preemption are not rigidly distinct.
• R.J. Reynolds Tobacco Co. v. Durham Cnty: provided the “so comprehensively” formulation for field preemption.
• Sikkelee v. Precision Airmotive Corp.: provided formulations for both field and conflict preemption and cautioned against defining the “preempted field” too broadly.
• Silkwood v. Kerr-McGee Corp.: cited for the two strands of conflict preemption (impossibility and obstacle).
• Schaffner v. Monsanto Corp.: reinforced that preemption scope should reflect congressional purpose, drawn primarily from statutory text and structure.
• TD Bank N.A. v. Hill: supported affirming on any ground supported by the record (here, adding conflict preemption even though the district court focused on field preemption).

D. Commodity/futures-market preemption line

• F.T.C. v. Ken Roberts Co., Am. Agric. Movement, Inc. v. Bd. of Trade of Chi., and Leist v. Simplot: were cited to show that other circuits have treated the Act as preempting state law purporting to regulate futures trading, supporting the majority’s conclusion that a uniform federal regime displaced state-by-state control over exchange-traded futures/swaps.
• Bd. of Trade of Chi. v. Olsen: provided historical grounding for longstanding federal regulation of futures markets.
• Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran: used to characterize the Act as a comprehensive scheme to regulate a complex market.

E. Savings clause and state common-law actions (majority footnote)

• Kerr v. First Commodity Corp. of Boston, Kotz v. Bache Halsey Stuart, Inc., and United States v. Brien: were cited to support the view that state common-law fraud or negligence actions may coexist with the federal commodity-futures regime without undermining its preemptive force over direct market regulation.

F. The dissent’s “presumption against preemption” authorities

Judge Roth’s dissent framed gambling regulation as a traditional state police-power domain and relied on the presumption against preemption. The dissent cited, among others:

• Rice v. Santa Fe Elevator Corp., Altria Grp., Inc. v. Good, and Medtronic, Inc. v. Lohr: for the “clear and manifest purpose” requirement and the strong presumption against preemption in traditional state fields.
• Ah Sin v. Wittman, WV Ass'n of Club Owners & Fraternal Servs., Inc. v. Musgrave, and Flynt v. Bonta: to underscore gambling as a core state police-power subject.
• West Virginia v. EPA and FDA v. Brown & Williamson Tobacco Corp.: to argue Congress would not silently assign a major policy role (national sports-gambling oversight) to an agency lacking comparative expertise.
• Farina v. Nokia Inc.: to argue savings clauses are “fundamentally incompatible with complete field preemption.”
• Fellner v. Tri-Union Seafoods, L.L.C., Puerto Rico Dep't of Consumer Affs. v. Isla Petroleum Corp., and Sprietsma v. Mercury Marine: invoked for the proposition that agency inaction does not itself preempt state law.

3.2 Legal Reasoning

A. The majority’s framing move: “DCM trading,” not “sports gambling,” is the relevant regulatory target

A pivotal feature of the majority’s analysis is its insistence on a narrow characterization of what New Jersey is doing: not merely regulating “sports gambling” in the abstract, but attempting to regulate swap trading on a CFTC-licensed DCM. That framing matters because the Act’s “exclusive jurisdiction” clause is directed at CFTC control over specified instruments and venues: “swaps . . . traded or executed on a [DCM].”

B. “Swap” and “event contract” fit: minimal statutory threshold

The court treated Kalshi’s sports-related event contracts as within the Act’s definition of “swap” because the contracts’ payouts are “dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event” and the event need only be “associated with a potential financial, economic, or commercial consequence.” Rejecting New Jersey’s proposed “joined or connected” gloss, the court held that sports outcomes can be associated with economic consequences (for sponsors, advertisers, media, franchises, and communities), and “the analysis need not go further.”

C. Preemption holding (as a likelihood-of-success determination)

(i) Field preemption

The court concluded that the Act likely occupies the field of regulating swaps traded on DCMs, relying on:

• the “exclusive jurisdiction” language in 7 U.S.C. § 2(a)(1)(A);
• Congress’s historical move away from a “patchwork” of state regulation (1974 amendments creating the CFTC); and
• supporting circuit authority treating the Act as preemptive of state regulation purporting to govern futures trading.

The majority also emphasized a textual limiting principle: 7 U.S.C. § 16(e)(1)(B)(i) preserves state/federal statutes for transactions “not conducted on or subject to the rules of a registered entity,” implying the inverse—transactions on a “registered entity” like a DCM are within the federally occupied sphere.

(ii) Conflict (obstacle) preemption

Even if field preemption were debated, the court held conflict preemption independently blocks New Jersey’s enforcement because it would “stand[] as an obstacle” to the Act’s objective of a uniform federal regime over exchange-traded futures/swaps. If each state could ban DCM-listed contracts based on state gambling policy, the market would revert to the “patchwork” Congress sought to eliminate.

D. Savings clauses: majority’s narrow reading

New Jersey argued the Act’s savings clauses preserve state authority. The majority rejected that, reading:

• the “Except as hereinabove provided” language in 7 U.S.C. § 2(a)(1)(A) as confirming that the grant of exclusive CFTC jurisdiction remains paramount; and
• the state-court carveout as preserving judicial jurisdiction over state common-law actions without authorizing state regulatory intrusion into DCM operations.

This is an important doctrinal move: it distinguishes (a) state tort and antifraud remedies from (b) state rules that would function as direct market-access bans on federally regulated venues.

E. Irreparable harm and public interest

The court accepted that threatened state civil/criminal enforcement, plus evidence of lost business relationships and reputational harm, satisfied irreparable harm. The public-interest/equities factors followed the merits: if the Act preempts New Jersey’s restrictions in this context, the public interest favors enforcement of federal law rather than state prohibitions.

3.3 Impact

A. Federalization of “sports prediction market” enforcement (when routed through DCMs)

The opinion’s practical thrust is that states cannot use gambling prohibitions to exclude or criminalize trading in sports-related event contracts when the contracts are listed and traded on a CFTC-licensed DCM. That channels regulatory disputes toward:

• CFTC listing oversight (including the “special rule” review authority for “gaming” contracts), and
• federal court litigation centered on CEA text and CFTC action/inaction.

B. Heightened pressure on the CFTC’s “special rule” posture

The court noted that the CFTC has codified its discretionary “gaming” review authority in 17 C.F.R. § 40.11 and—at least as of the opinion—“has not yet acted to review or prohibit any sports-related event contracts,” while simultaneously initiating a proposed policy process (Prediction Markets, 91 Fed. Reg. 12516). The decision therefore increases the stakes of whether the CFTC will:

• affirmatively permit, condition, or prohibit sports-related event contracts, and
• clarify what “gaming” means in this context.

C. Litigation blueprint for future preemption fights

The majority supplies a roadmap for similar cases: define the field as DCM swap trading, treat state bans as direct obstacles to a uniform national derivatives market, and read savings clauses as preserving common-law remedies but not state market bans. The dissent supplies the counter-blueprint: emphasize gambling as a traditional state police-power area; apply the presumption against preemption; treat DCM trading as a subfield; and argue that federal “exclusive jurisdiction” cannot silently displace state gambling codes.

4. Complex Concepts Simplified

• Derivative: a financial instrument whose value depends on something else (here, an event outcome).
• Event contract: a derivative that pays based on whether a specified event happens (e.g., “yes/no” on a sports outcome).
• Swap (under the Act): broadly, an agreement where payments depend on an event/contingency associated with potential economic consequences. The majority treated Kalshi’s sports-event contracts as “swaps.”
• DCM (Designated Contract Market): a CFTC-licensed exchange venue. Once designated, it can list products through self-certification (presumptive approval), subject to later CFTC review.
• Exclusive jurisdiction: Congress can assign a federal regulator primary control such that conflicting state regulation is displaced. Here, the majority read the Act as giving the CFTC exclusive jurisdiction over swaps traded on DCMs.
• Field preemption vs. conflict preemption: field preemption means federal law “occupies” an entire regulatory area; conflict preemption means state law either makes compliance impossible or creates an obstacle to federal objectives.
• Savings clause: statutory language preserving some role for state law (often state tort claims) even within a federally regulated domain. The majority read the Act’s savings clauses narrowly; the dissent read them as incompatible with field preemption.
• “Special rule” for gaming contracts: a Dodd-Frank addition allowing the CFTC to review/prohibit certain event contracts (including “gaming”) if contrary to the public interest. The majority treated this as discretionary and not triggered here by CFTC action; the dissent treated CFTC rule text as prohibitory in practice.

5. Conclusion

The Third Circuit’s decision establishes (at the preliminary injunction stage) a powerful preemption principle: when sports-related event contracts qualify as swaps and are traded on a CFTC-licensed DCM, the Commodity Exchange Act’s grant of exclusive CFTC jurisdiction likely preempts state gambling prohibitions that would otherwise ban the same activity. The court reinforced this with both field and conflict preemption, while narrowing the role of state law to preserved judicial/common-law domains rather than state regulatory bans that would fragment a national exchange-traded market.

Judge Roth’s dissent highlights the unresolved policy and doctrinal tension the case tees up for future merits litigation and regulatory action: whether “sports event contracts” are best understood as federally regulated swaps or as gambling products within the states’ traditional police powers—and how the presumption against preemption and the Act’s savings clauses should influence that choice.