Kalshi’s Court Defeat Could Reshape State Regulation of Prediction Markets

Kalshi has faced a fresh courtroom setback after a federal appeals court ruled that Nevada may have the authority to regulate the company’s sports prediction contracts. The decision also creates a deeper divide among federal courts, increasing the possibility that the U.S. Supreme Court could eventually take up the dispute.

A unanimous panel of the U.S. Court of Appeals for the Ninth Circuit rejected Kalshi’s claim that Nevada regulators were barred from overseeing its business because its exchange is federally regulated by the Commodity Futures Trading Commission under the Commodity Exchange Act.

The appeals court said the CEA likely does not prevent Nevada from enforcing its gambling regulations against Kalshi’s sports event contracts. It also rejected the company’s argument that those contracts should be considered swaps falling within the CFTC’s exclusive jurisdiction.

Instead, the panel determined that the contracts at issue were sports bets rather than swaps for purposes of federal commodities law.

Federal Courts Take Different Positions

The ruling does not settle the broader question facing prediction markets. Instead, it adds to a growing split in the federal judiciary.

Another federal court ruled in April that New Jersey could not regulate Kalshi’s operations, reaching a conclusion that conflicts with the Ninth Circuit’s latest decision.

The opposing rulings could ultimately force the Supreme Court to decide how federal derivatives law applies to prediction markets and whether states can impose their own gambling rules on federally regulated platforms.

CFTC spokesperson Zach Fulton criticized the Ninth Circuit’s interpretation, arguing that the judges had misread the Commodity Exchange Act.

Fulton said a derivative contract that is legally structured as a swap should remain a swap regardless of what the contract covers, except for the limited categories specifically excluded by Congress. He accused the Ninth Circuit of creating an exception that is not supported by the statute’s wording.

Nevada Welcomes the Decision

Nevada regulators have been battling prediction market operators since 2025, arguing that sports event contracts are effectively wagers and therefore require state approval.

Although Kalshi has already exited Nevada and several other states following regulatory orders, Nevada officials said Friday’s ruling supports their long-standing position.

Nevada Gaming Control Board Chairman Mike Dreitzer said the decision validates the argument that Kalshi’s sports contracts are sports betting and should be subject to state oversight.

The ruling also referred to sports-related offerings from Robinhood and Crypto.com, meaning its potential impact could extend to other financial platforms offering similar contracts.

Kalshi Disputes the Outcome

Kalshi focused on what it described as an important favorable element of the decision.

Company spokesperson Dani Lever said the Ninth Circuit agreed with the Third Circuit that federal law prevents states from regulating trading on federally licensed exchanges such as Kalshi.

The company continues to reject the conclusion that its sports contracts can be regulated under state gambling laws. Kalshi argues that current CFTC rules do not prohibit these contracts and said the agency is considering regulatory changes that could clarify the issue.

Lever said Kalshi intends to seek additional judicial review.

Legal Pressure Builds Across the Industry

The Ninth Circuit ruling comes amid a broader nationwide fight between prediction market operators and state regulators.

Kalshi and competing platforms have faced lawsuits and enforcement actions in multiple states. Connecticut filed another case against prediction market companies earlier this week, adding to the industry’s growing list of legal disputes.

The CFTC has also entered the fight through separate lawsuits, arguing that federal law gives it sole authority over Kalshi and comparable businesses.

Traditional sports betting interests welcomed the latest ruling. The American Gaming Association described it as a victory for consumer protections and taxpayer revenues, while accusing Kalshi and other prediction platforms of creating a way to offer sports wagering outside state regulatory frameworks.

The conflicting court decisions leave a fundamental issue unresolved: whether sports event contracts offered through federally regulated exchanges are financial derivatives under federal law or gambling products subject to state control. That question may now be headed toward the Supreme Court.