preferred on
Points of Focus
- The Ninth Circuit lets Nevada enforce gambling laws against Kalshi sports contracts.
- Ruling directly conflicts with the Third Circuit’s earlier New Jersey decision.
- Growing circuit split increases pressure for eventual Supreme Court intervention nationwide.
Kalshi has suffered another major legal setback in Nevada after a federal appeals court ruled the state can continue applying its gambling laws to the prediction market’s sports contracts, deepening a split between US courts over whether those products fall under federal commodities law or state betting regulation.
The US Court of Appeals for the Ninth Circuit on Aug. 28 upheld a lower court decision dissolving an injunction that had prevented the Nevada Gaming Control Board from enforcing state law against Kalshi.
The three-judge panel concluded that Kalshi had failed to show that the Commodity Exchange Act (CEA) likely preempts Nevada’s gambling rules as they apply to sports event contracts.
The ruling leaves Kalshi’s sports trading suspended in Nevada unless the company complies with state gaming requirements or succeeds in further litigation. Kalshi said it intends to continue challenging the decision.
The case has implications well beyond Nevada because it directly conflicts with an April ruling from the Third Circuit involving New Jersey.
Ninth Circuit says sports contracts are not protected swaps
Kalshi’s argument rests on its status as a Commodity Futures Trading Commission-regulated designated contract market.
The company maintains that its event contracts are derivatives governed by the CEA and that the CFTC therefore has exclusive jurisdiction over trading conducted on its exchange.
Nevada disagrees. Its regulators have treated sports contracts on Kalshi as gambling products that require a state license.
The Ninth Circuit largely sided with Nevada.
The court said the CEA’s definition of a swap should not be read so broadly that virtually any wager involving an event with an economic consequence becomes a federally protected financial instrument.
The panel also pointed to CFTC regulations addressing contracts involving gaming and rejected Kalshi’s argument that federal designation automatically removes state authority over sports betting.
Judge Ryan Nelson wrote that Kalshi’s interpretation would stretch federal commodities law beyond its statutory structure and raise concerns under the Supreme Court’s major-questions doctrine.
The court affirmed the dissolution of Kalshi’s preliminary injunction for sports contracts.
Election contracts were treated differently. The Ninth Circuit sent that part of the dispute back to the district court for additional consideration rather than deciding whether Nevada can regulate them under the same theory.
New Jersey ruling reached the opposite conclusion
The decision sharpens a significant disagreement between federal appeals courts.
On April 6, the Third Circuit upheld an injunction preventing New Jersey from enforcing its gambling laws against Kalshi’s sports event contracts.
That court concluded that the contracts likely qualify as swaps under the CEA because their payouts depend on events with potential financial or economic consequences.
The majority found that both field and conflict preemption supported Kalshi, effectively giving the CFTC exclusive authority over those contracts when traded on a federally licensed designated contract market.
The result is now unusually stark.
In New Jersey, Kalshi has appellate authority supporting its argument that federal commodities law shields its sports contracts from state gambling regulation.
In Nevada, the Ninth Circuit has essentially reached the opposite interpretation.
The CFTC has also criticized the Nevada ruling. A spokesperson said that the court misread federal law and that the disagreement had created a circuit split that could require resolution by the Supreme Court.
Nevada has already forced Kalshi off sports markets
The legal battle has produced practical consequences.
Nevada regulators said in June that Kalshi had failed to comply with a state court order requiring it to geofence sports, election, and entertainment contracts from Nevada users. The Gaming Control Board subsequently sought to have the company held in contempt.
By July 24, Nevada said Kalshi had shut down its sports prediction-market business in the state.
Similar disputes are playing out across 20 states, according to AP, as regulators challenge the idea that platforms can offer sports contracts nationwide under one federal license while bypassing state sportsbook rules.
That conflict now has two competing appellate answers.
Kalshi has built much of its expansion around the argument that prediction markets are federally regulated financial exchanges rather than sportsbooks. Nevada’s victory weakens that position across states covered by the Ninth Circuit, while the New Jersey ruling preserves it elsewhere.
Unless the appeals courts eventually converge, the growing split makes a Supreme Court review increasingly plausible. For Kalshi, the central issue is no longer simply whether sports contracts resemble betting. It is whether federal commodities law gives prediction markets a nationwide regulatory shield against states that say they are gambling.
Share
Most read articles
