Kalshi took a hit in the Ninth Circuit on Aug. 28, after a 3-0 panel said Nevada can enforce its gaming laws against the company’s sports event contracts.
- 3-0 loss for Kalshi
- Court said the contracts likely look like bets, not swaps
- Nevada can keep enforcing its gaming laws
- Federal courts are now split on prediction markets
The ruling is a clear setback for Kalshi’s argument that federal commodities law shields its sports markets from state gambling regulation. Writing for the panel, Circuit Judge Ryan Nelson said the contracts at issue carry the “hallmarks of sports betting” and that “The CFTC is not a national gambling regulator.” He added, “No one suggested it was until over a decade after the law was passed.”
That is the core fight. Kalshi says its products are federally regulated event contracts traded on a designated contract market, so states should not be able to treat them like gambling. Nevada says a sports contract is still a sports contract, no matter how much legal seasoning gets sprinkled on top.
For readers new to the jargon, a designated contract market is a trading venue regulated by the Commodity Futures Trading Commission, or CFTC. A swap is a kind of derivative under the Commodity Exchange Act. Kalshi argued its sports contracts fit that federal definition. The Ninth Circuit said they likely do not.
That distinction matters because Kalshi’s preemption theory depends on the idea that federal law overrides state law here. In plain English, Kalshi wants federal commodities rules to outrank Nevada’s gaming rules. The panel was not persuaded that Congress handed the CFTC authority to become the country’s de facto gambling regulator.
The court’s reasoning also brushed up against the major questions doctrine, which says agencies generally need clear congressional authorization for big policy moves. If Kalshi’s reading were right, the panel suggested, the CFTC would end up with sweeping power over sports wagering without Congress saying so directly. That is a heavy lift, and the court was not buying it.
What the Ninth Circuit decided
The practical result is simple: Nevada can keep enforcing its gaming laws against Kalshi’s sports event contracts while the case continues. The panel also remanded Nevada’s challenge to Kalshi’s election contracts back to the district court for further review.
This was not a narrow procedural shrug. The court’s ruling signals that, at least in the Ninth Circuit, sports event contracts can look enough like gambling that state regulators are not automatically preempted just because the product is listed on a federally overseen venue.
That covers a lot of territory. The Ninth Circuit includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington, so this is not some tiny local skirmish. It has real regional weight.
Why Kalshi keeps running into state regulators
Kalshi’s business spans politics, sports, economic data, weather, and entertainment contracts. The pitch is that these markets can be informative, because prices reflect what traders think is likely to happen.
That part is not nonsense. Prediction markets can be useful. They can even be genuinely interesting when they’re tied to elections or macroeconomic events.
But usefulness does not erase regulation. A product can be informative and still fall into a legal category that states have regulated for decades. In sports, that category is usually called gambling.
That is why the “we’re just a financial market” argument keeps running into a brick wall. If a contract pays out based on whether a team wins a game, regulators are going to notice that it smells a lot like a bet. Labels do not change the underlying economics. They mostly change the pitch deck.
Kalshi says its federally registered structure should give it room to offer event contracts nationwide. Nevada and other states say no: if the product is sports wagering, it needs to comply with state gambling law, licensing rules, and consumer protections. That’s not a cute technicality. It is the actual law.
A split is forming across federal courts
The Ninth Circuit is not alone in wrestling with this. On April 6, the Third Circuit ruled in favor of New Jersey in a separate Kalshi dispute, creating direct tension with the Ninth Circuit’s approach.
Other courts are still in the mix too. The Fourth Circuit is reviewing a Maryland decision, and the Second Circuit is considering litigation involving Connecticut. As those cases move, the legal picture is getting less consistent, not more.
State regulators are also moving fast. In July, a Washington state judge blocked Kalshi sports contracts. On Aug. 26, Connecticut sued Kalshi over sports contracts. And in December 2025, Connecticut’s Department of Consumer Protection ordered Kalshi, Robinhood and Crypto.com to stop offering or promoting sports event contracts.
That is a pretty loud message from the states: they are not waiting for a tidy federal answer before acting.
Nicole Saharsky, speaking for the Nevada Gaming Control Board, said the Ninth Circuit’s ruling confirmed that states regulate sports betting. Arizona Attorney General Kris Mayes was even blunter, saying that calling a sports bet a swap does not change the product’s nature.
Why this matters for prediction markets
The biggest consequence is not just one company losing one appeal. It is the broader uncertainty around whether sports event contracts can scale nationally without running into a wall of state gambling enforcement.
If courts keep treating sports contracts as gambling products, Kalshi’s nationwide expansion gets a lot harder. A patchwork of state-by-state restrictions is poison for any business that wants a uniform U.S. market. That is especially true when the product depends on fast-moving, high-volume trading.
Non-sports prediction markets may have a cleaner path. Politics, economic data, weather, and some other event contracts raise different questions and do not always trigger the same gambling concerns. Sports is the hot zone because state gaming law has been built around it for a long time, and regulators know exactly where to push back.
Former SEC Chair Gary Gensler has also argued that Congress did not include sports betting contracts in the statutory swap definition. That lines up with the Ninth Circuit’s reasoning and cuts against the idea that the CFTC quietly inherited authority over sports wagering by accident.
None of this means prediction markets are dead. It means the sports side of the business is stuck in a legal fight over whether it is innovation, gambling, or some irritating hybrid that makes everyone hire more attorneys.
What happens next
Kalshi can still pursue more legal options. A request for rehearing from the full Ninth Circuit or a petition to the Supreme Court would not be surprising, especially now that a circuit split is forming.
That split matters. When different federal appeals courts reach different conclusions on the same legal issue, the odds of Supreme Court review usually rise. Usually. The Court still gets to say no, because apparently even constitutional drama needs a gatekeeper.
Congress could also step in and clarify whether sports prediction markets belong in the derivatives bucket, the gambling bucket, or somewhere in between. Right now, the law is doing what unclear law always does: producing more litigation, more regulatory friction, and more billable hours than anyone asked for.
Kalshi’s legal and political pressure campaign has also drawn attention as the company leans on Washington while state regulators keep swinging. That broader fight is captured in Trump backs prediction markets as the CFTC and the states clash over where the line actually sits.
The company has not been sitting still on the policy front either. Its push for a friendlier regulatory environment has ramped up alongside the courtroom battles, and that effort is laid out in Kalshi’s lobbying push as prediction markets face legal crackdowns.
Key questions and takeaways
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Why did the Ninth Circuit rule against Kalshi?
The panel said Kalshi’s sports event contracts are likely bets rather than swaps under federal commodities law, so Nevada can enforce its gaming laws against them. -
Does CFTC registration protect Kalshi from state gambling law?
Not automatically. The court said federal registration does not by itself block state enforcement when the product looks like sports betting. -
Why does the swap question matter?
If the contracts are swaps, they sit inside the federal derivatives regime. If they are really sports wagers, state gaming laws can still apply. -
Is the legal fight over prediction markets settled?
No. The Ninth Circuit ruling conflicts with the Third Circuit’s New Jersey decision, and other federal appeals courts are still weighing similar disputes. -
Could the Supreme Court take this up?
Possibly. A circuit split makes Supreme Court review more likely, but the Court is not required to hear the case. -
What does this mean for Kalshi’s sports markets?
It makes national expansion harder and increases the risk that more states will try to block or restrict those contracts.
The Ninth Circuit did not end the debate, but it did sharpen the lines. Federal registration is not a magic shield, and calling a wager a swap does not make the legal problem disappear. For Kalshi, the road ahead just got narrower.
