Court hands states a win in fight over who regulates prediction markets

A federal appeals court on Friday rejected Kalshi's efforts to stop Nevada from regulating speculation on sporting events on its platform, handing states an important win in the battle over which level of government has authority to oversee the rapidly growing prediction-markets business.

The 9th Circuit Court of Appeals said Kalshi failed to show that the 1936 Commodity Exchange Act, which regulates commodity futures trading, preempts Nevada gambling laws and bars the state from regulating wagers related to sporting events. Those prediction market contracts are not federally regulated "swaps" but rather sports bets, the court said.

"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," Ryan Nelson, one of the 9th Circuit judges, wrote in the court's opinion.

States are locked in an ongoing legal fight with the federal government over which level of government has primary regulatory oversight of prediction markets, which allow users to bet on the outcomes of sports, elections and many other events.

Roughly 20 states are involved in litigation over prediction markets, and experts say the battle is likely to wind its way to the Supreme Court.

A separate decision in April reached a different conclusion than Friday's decision, with the 3rd U.S. Circuit Court of Appeals ruling that the Commodity Futures Trading Commission, a government agency that regulates derivatives markets, has exclusive control over sports-related event contracts on Kalshi.

"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 said the ruling "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."