An appeals court rules states can regulate prediction markets, finding Kalshi's sports event contracts are bets, not swaps, and subject to state gambling laws
The outcome contradicted an earlier appeals court decision. Federal regulators said the split rulings called for resolution by the Supreme Court.
The new appellate holding creates a direct conflict over whether sports event contracts are federally regulated swaps or gambling subject to state oversight. Federal regulators say that split requires Supreme Court resolution.
First-order effects
Kalshi's sports event contracts are exposed to state gambling-law enforcement in the jurisdiction covered by the ruling, rather than being insulated solely by CFTC jurisdiction.
Nevada and other states within the ruling's reach gain judicial support for treating Kalshi's sports contracts as gambling activity.
Second-order effects
Kalshi must navigate incompatible appellate interpretations: its April New Jersey precedent supports federal exclusivity, while the new ruling supports state regulation.
The CFTC and state gambling regulators face a jurisdictional conflict that federal regulators have identified as requiring Supreme Court resolution.
Third-order effects
If the split persists, prediction-market liquidity and product availability may fragment along state regulatory lines, weakening the premise of a uniform national sports-contract market.
A Supreme Court ruling would determine whether the boundary between event-contract trading and gambling is set primarily by federal derivatives oversight or state gambling law.
The trend: Prediction markets are becoming a test case for whether financial-market infrastructure can offer sports contracts under federal rules when states classify the same activity as gambling.
A win for Nevada and a win for ALL of States in the Ninth Circuit. The 8 other beneficiaries are Alaska, Arizona (reversal there too?), California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. There may be some more state court enforcement on tap. What about California?
Nobody who read the oral transcripts can be surprised by today's Ninth Circuit ruling against Kalshi. The bigger lesson: never underestimate Article III. Congress changes. Administrations change. Court decisions stick. My take: a loss on federal preemption isn't necessarily bad
Today's decision reaffirms that prediction markets are running illegal sports gambling operations. It's time for them to start following the law. States and Tribes know how to regulate gambling - they've done it for decades, protecting consumers while helping fund our schools
The 9th Circuit came to the same conclusion that everyone knows, prediction markets are gambling. While this is good news, it is time for Congress to make it the law of the land. Pass the Bipartisan Prediction Markets Are Gambling Act https://thenevadaindependent.com/ ...
First sentence of opinion ruling for Nevada and against Kalshi in the Ninth Circuit. “KalshiEX, LLC advertises itself as ‘the first app for legal sports betting in all 50 states.’” Oops.
Surprising how often CFTC Rule 40.11 is misinterpreted. The Rule allows CFTC to prohibit contracts in specific categories only if contrary to the public interest. Not an outright prohibition of all contracts in those categories. By rule, default is to allow, not prohibit.
Lot of misreading about this case. The panel was a 3-0 but primarily came to the decision by saying CFTC hadn't properly made clear these products weren't gaming products under Commodity Exchange Act. It's a loss but not to extent of headline below. More legal process awaits.
I am to the point that I think keeping money on Kalshi involves too much risk. I have leaned that way lately. This ruling is too much to ignore. Barring a Supreme Court miracle, Kalshi's industry is in serious trouble, and it is time to plan accordingly. I will write more soon.
1/ The Ninth Circuit got prediction markets wrong today. And the Court's decision goes far beyond just sports-referenced contracts. The Court adopted a principle that could undermine the federal framework governing derivatives markets across the country. 🧵
This is a welcome development. Prediction markets are not commodity swaps but gambling, and subject to state, not federal regulation absent express preemption—as I argued when I was a Attorney General.
If sports event outcomes do not qualify as excluded commodities, then sports event contracts are outside the scope of the special rule for event contracts and outside the scope of the Rule 40.11 prohibition. That's an internal inconsistency in the opinion and it can't be right.
This is a positive step towards upholding our gaming laws in Nevada. Three Trump appointed judges reaffirmed the basic principle that states and tribes should be the ones to regulate gambling within their borders. If it looks like sports betting and talks like sports betting,
The choice for Kalshi: Rehearing en banc or go straight to SCOTUS? Probably the latter here, especially after going 0-3 in front of three Trump-appointed judges. Couldn't have asked for a better panel draw.