Key facts
- A federal appeals court ruled that states can regulate prediction markets as gambling.
- The Ninth Circuit Court of Appeals rejected Kalshi's attempts to prevent Nevada from overseeing its sports prediction markets.
- The court stated that Kalshi's sports event contracts are sports gambling, not federally regulated swaps.
- The ruling contradicts a previous decision by the Third Circuit Court of Appeals.
- Legal experts believe the matter will ultimately be settled by the Supreme Court due to the circuit split.
A federal appeals court has ruled that states can regulate prediction markets as gambling, a decision that significantly impacts the burgeoning industry. The Ninth Circuit Court of Appeals rejected Kalshi's attempts to prevent Nevada from overseeing its sports prediction markets, stating that the contracts offered are sports bets, not federally regulated swaps.
The ruling, issued by a panel of three Trump-appointed judges, directly contradicts a previous decision by the Third Circuit Court of Appeals, which had sided with prediction sites and halted New Jersey's attempt to apply its gaming laws. This creates a circuit split, making a Supreme Court review increasingly likely.
Kalshi, which operates federally regulated financial exchanges offering "event contracts" under CFTC licenses, argued that its products were not sports betting. However, the Ninth Circuit panel found this distinction unpersuasive, noting Kalshi's own marketing materials previously used such phrasing. The court stated, "The substance of the sports event contracts offered on Kalshi’s (exchange) is sports gambling, regardless of whether Kalshi calls them swaps."
Nevada regulators, along with 44 other states, have argued that these platforms function as gambling and should be subject to state gaming laws and taxes. Nevada Governor Joe Lombardo stated the ruling would help "safeguard the integrity of our gaming industry," a sentiment echoed by Mike Dreitzer, chair of the Nevada Gaming Control Board.
Kalshi condemned the ruling and indicated it would seek further review, with spokeswoman Dani Lever stating, "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."
Legal experts suggest the case is a significant courtroom victory for states seeking to regulate prediction sites and moves the issue closer to a definitive Supreme Court decision. The Ninth Circuit's ruling sets a precedent for federal judges in California, Arizona, and six other states that have pushed for greater regulation.