A federal appeals court has affirmed the authority of states to regulate prediction markets, marking a significant development in the legal debate over oversight of these rapidly growing wagering platforms.
On Friday, the U.S. Court of Appeals for the Ninth Circuit in San Francisco rejected Kalshi Inc.’s request to overturn Nevada’s gambling laws after the state initiated a lawsuit in February accusing the company of operating without a license. Kalshi is among the most prominent prediction market platforms, facilitating billions of dollars in trades on a wide array of events ranging from elections to sports and entertainment. However, its expansion has prompted several states to push back against what they view as unregulated gambling activity.
At the heart of the dispute is whether prediction markets like Kalshi’s should be classified as “swaps,” a category of financial contracts regulated exclusively at the federal level under the Commodity Exchange Act, or as wagers subject to state gambling laws. In its ruling, the Ninth Circuit upheld an earlier federal court decision, stating that Kalshi’s “sports event contracts were not ‘swaps’ because they were sports bets,” and thus within the jurisdiction of state regulators. This position was underscored by Nevada Attorney General Aaron Ford, who said his office was “proud to have defended Nevada’s authority” and that “sports betting does not become something else simply because a company calls it an ‘event contract.’”
The court’s decision conflicts with a ruling from the Third Circuit in Philadelphia issued in April, which concluded that Kalshi’s sports event contracts qualified as swaps under the Commodity Exchange Act. That ruling effectively placed regulatory oversight with the Commodity Futures Trading Commission (CFTC), the federal agency responsible for financial derivatives. Kalshi’s representatives criticized the Ninth Circuit ruling, with spokesperson Dani Lever stating the company believes CFTC regulations do not bar sports contracts and that it plans to seek further judicial review. Kalshi’s legal counsel called the ruling erroneous, saying the court created a new exception to federal law.
This disagreement reflects broader controversy over the regulation of prediction markets nationwide. Last month, officials from 44 states signed a letter arguing that sports bets should neither be classified as swaps nor futures or other derivatives, thus falling outside the scope of the CFTC’s authority. Meanwhile, ongoing litigation is pending in several other federal appellate courts, including the Second, Fourth, Sixth, and Seventh Circuits, which could further clarify the regulatory landscape.
As states and federal agencies continue to wrestle with where authority should lie, the future oversight framework for prediction markets remains uncertain but will likely have significant implications for the industry’s growth and legal compliance in the coming years.