A federal appeals court ruled Friday that Nevada can enforce its gambling laws against sports-related prediction contracts, rejecting challenges from Kalshi and Crypto.com in a decision that could reshape the rapidly growing industry.
The Ninth Circuit Court of Appeals unanimously rejected Kalshi's argument that its sports contracts are federally regulated financial instruments under the Commodity Exchange Act. The three-judge panel wrote that prediction market contracts on sporting events constitute sports wagers subject to state gambling laws, not swaps regulated by the Commodity Futures Trading Commission.
The ruling upholds a lower-court decision allowing Nevada gaming authorities to regulate Kalshi's sports contracts and creates a direct conflict with an earlier Third Circuit decision involving New Jersey, setting up potential Supreme Court review.
What the Left Is Saying
Consumer protection advocates and state gaming regulators have long argued that prediction markets operating on sporting events function identically to traditional sports betting and should face equivalent oversight. Nevada Gaming Control Board Chairman Mike Dreitzer said after the ruling: "This is sports betting and needs to be properly regulated by the state."
Progressive legal scholars argue that state gambling frameworks exist for important reasons, including consumer protections, anti-money-laundering requirements, and revenue generation through taxation. They contend that companies like Kalshi cannot circumvent established regulatory structures simply by relabeling their products as financial instruments rather than wagers.
Democratic state attorneys general from dozens of states have filed briefs supporting Nevada's position, arguing that allowing prediction markets to operate outside gambling regulations creates an uneven playing field that harms licensed sports books and evades taxes paid by traditional gaming operators. They note that Kalshi's own marketing described the platform as "the first app for legal sports betting" in all 50 states.
What the Right Is Saying
Free-market advocates and prediction market companies argue that federal regulation under the Commodity Exchange Act provides appropriate oversight without subjecting innovative financial products to outdated state gambling frameworks designed for casino operations. They contend that prediction markets serve legitimate forecasting functions for businesses, researchers, and individuals seeking information about future events.
Kalshi has maintained it operates a federally licensed exchange under CFTC jurisdiction and that federal law preempts states from regulating trading activity on such platforms. Spokeswoman Dani Lever said in a statement: "The Ninth Circuit agreed with the Third Circuit on a fundamental point: Federal law prevents states from regulating trading on a federally licensed exchange, like Kalshi." She added that the company believes CFTC regulations permit sports contracts and it will seek further review.
Conservative commentators have argued that state gambling laws were never designed for modern prediction markets and that forcing these platforms into casino regulatory frameworks would stifle innovation. They note that the CFTC has expertise in regulating derivatives and is better positioned than state gaming commissions to oversee complex financial instruments.
What the Numbers Show
The Ninth Circuit decision noted that Kalshi marketed itself as "the first app for legal sports betting" in all 50 states, a claim that undercut its argument that the contracts were distinct from traditional gambling products. The court pointed specifically to this marketing language in its ruling.
DraftKings and Flutter Entertainment, the parent company of FanDuel, saw their share prices rise following the decision as investors assessed implications for the prediction-market sector. Traditional sportsbook operators have argued they face unfair competition from prediction markets that avoid state licensing fees and gaming taxes.
The CFTC has previously sued states in attempts to prevent them from regulating prediction market platforms under gambling laws, asserting exclusive federal jurisdiction over these instruments. The agency told CNBC it believes it has authority over prediction markets operating under the Commodity Exchange Act.
Columbia Law School professor Joshua Mitts described the situation as "a classic circuit split" that he predicted would eventually reach the Supreme Court for resolution.
The Bottom Line
The Ninth Circuit ruling represents a significant setback for prediction market companies seeking to operate sports contracts under federal CFTC oversight rather than state gambling regulations. The court's finding that these instruments constitute sports wagers subject to Nevada law could force platforms to restructure their offerings or exit certain markets.
The circuit split between the Third and Ninth Circuits makes Supreme Court intervention increasingly likely, though such review would require either a cert petition from one of the parties or the federal government taking up the issue. Legal experts expect this case to proceed through additional appeals before potentially reaching higher courts.
Prediction market operators are now weighing whether to continue fighting in court, restructure their products to avoid sports-event contracts, or negotiate regulatory frameworks with state gaming authorities. The outcome could determine whether Americans can trade contracts on sporting events through federally regulated exchanges or must use state-licensed gambling platforms.