Appeals court rules states can regulate prediction market platforms like gambling

The 9th Circuit Court of Appeals ruled Friday that states can regulate prediction market platforms like gambling and sportsbooks, dealing a heavy blow to the industry.

In a unanimous ruling , a three-judge panel agreed with a lower court decision allowing Nevada gaming regulators to oversee the prediction market Kalshi, which argued only the federal government has the authority to regulate event contract platforms.

Specifically, Kalshi argues the sports event contracts offered by prediction markets are “swaps,” part of a designated contract market that falls under the jurisdiction of the Commodity Futures Trading Commission (CFTC).

Friday’s opinion, written by Circuit Judge Ryan Nelson, said Kalshi did not show a “likelihood” the Commodity Exchanges Act (CEA) preempts state gaming regulations when it comes to sports event contracts. The act gives the CFTC the legal authority to regulate U.S. derivatives markets.

“However, under the CEA’s definition … the sports event contracts were not ‘swaps’ because they were sports bets,” Nelson wrote for the panel. “As to conflict preemption, the panel rejected Kalshi’s argument that it was impossible to comply with both Nevada law and the CEA, and that Nevada law posed an obstacle to the CEA’s purposes.”

“The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps,” Nelson added.

The other two judges on the panel were Judges Kenneth Kiyul Lee, who wrote a concurring opinion, and Judge Bridget Bade.

All three judges were appointed by President Trump, who has supported the rise of prediction markets and backed the CFTC having exclusive authority of the platforms.

Kalshi pushed back on the ruling, and spokesperson Dani Lever told The Hill the company will seek “further review.”

“Despite the Ninth 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,” Lever said.

The case originates from a lawsuit brought by the Nevada Gaming Control Board earlier this year against Kalshi, alleging the platform is engaged in illegal, unlicensed gambling. Nevada has the highest gaming revenue in the U.S.

“This completely vindicates what we have been saying all along. This is sports betting and needs to be properly regulated by the state,” board chair Mike Dreitzer said in a statement responding to the 9th Circuit panel ruling.

Friday’s ruling notably breaks with the 3rd Circuit Court of Appeals’s ruling in April, which allowed Kalshi to operate in New Jersey as the company’s appeal process proceeds. The court ruled Kalshi is likely to succeed in its argument that federal law preempts New Jersey’s regulation.

The contradicting rulings are likely to tee up a fight in the U.S. Supreme Court.

Twenty states are in active litigation over whether prediction markets can be regulated by the states, with Friday’s ruling potentially making it easier for states to move forward with oversight. Last month, 44 states signed a letter to the CFTC, arguing the agency does not have the authority to regulate sports-related event contracts.