A federal appeals court on Friday dealt a setback to Kalshi, refusing to block Nevada from policing sports-related speculation offered on the platform. The ruling marks a significant victory for state regulators in the widening dispute over who controls the fast-expanding prediction markets industry.
The 9th U.S. Circuit Court of Appeals found that Kalshi had not demonstrated that the Commodity Exchange Act of 1936, the federal law governing commodity futures trading, overrides Nevada’s gambling statutes or prevents the state from regulating sports-event wagers. The court concluded that the contracts at issue are not federally protected “swaps,” but sports bets subject to state oversight.
“The substance of the sports event contracts offered on Kalshi’s DCM [designated contract market] is sports gambling, regardless of whether Kalshi calls them swaps,” Judge Ryan Nelson wrote for the 9th Circuit.
State and federal turf war
The decision comes as states remain locked in an ongoing legal fight with federal regulators over prediction markets, platforms that let users place money on the outcome of sports contests, elections and a wide range of other events.
About 20 states are now involved in litigation tied to prediction markets, and legal observers expect the clash over state versus federal authority could eventually land before the U.S. Supreme Court.
Friday’s ruling also deepens a split among federal courts. In April, the 3rd U.S. Circuit Court of Appeals reached the opposite result, holding that the Commodity Futures Trading Commission — the federal agency overseeing derivatives markets — has exclusive authority over Kalshi’s sports-related event contracts.
“The 9th Circuit agreed with the 3rd Circuit on a fundamental point: Federal law prevents states from regulating trading on a federally licensed exchange, like Kalshi,” Kalshi spokesperson Dani Lever said in an email. “Despite the 9th Circuit’s opinion, we still believe the CFTC regulations, as written, do not prohibit sports contracts, and in any event, the CFTC is working to clarify those regulations. We will be seeking further review.”
The Nevada Gaming Control Board welcomed the decision, saying it “vindicates what we have been saying all along. This is sports betting and needs to be properly regulated by the state.”
Dominick Freda, legal director of Better Markets, a nonprofit advocacy organization focused on financial reform, said in an email that the 9th Circuit’s decision is a “decisive win for the rule of law and for every state that has built a regulatory regime to protect its residents from gambling harms.”
Alain Sherter
contributed to this report.
