Under the law, swaps include event contracts, judges noted. The Dodd-Frank Act gave the CFTC discretionary power to review and prohibit six categories of contracts if it concludes any violate the public interest. Those categories include gaming contracts. So far, the CFTC “has not yet acted to review or prohibit any sports-related event contracts,” the ruling said.

“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,” the majority said. “Thus, it was reasonable for the District Court to conclude that Kalshi was likely to succeed in showing that the Act preempts New Jersey law from reaching into Kalshi’s CFTC-licensed DCM to ban sports-related event contracts.”

Roth’s dissent acknowledged that a plain reading of the US law’s “text suggests that Kalshi’s sports-event contracts fit comfortably within the statutory definition” of swaps. “On the other hand, we should not read statutes literally ‘if reliance on that language would defeat the plain purpose of the statute,’ or would ‘def[y] rationality,’” she said. “As New Jersey argues, Kalshi’s proffered definition would likely encompass virtually every kind of wager that could exist, including classic casino games and charity raffles.”

The law defines swap to include contracts in which 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.” Roth said that with this expansive definition, “even a bet over the outcome of a friendly neighborhood ping pong match” would qualify.

“Moreover, because the trading of swaps outside DCMs is illegal under 7 U.S.C. § 2(e), any individual who engages in gambling outside of a DCM would commit a felony were we to take the definition of swaps to its logical extreme,” Roth wrote. “Congress could not have intended for such a rationality-defying outcome.”