Federal Appeals Court Rules Against Kalshi, Says Nevada Can Ban Sports Bets on Prediction Markets

Kalshi today lost a major ruling over whether it can evade state gambling laws, as a federal appeals court found that Nevada can stop the prediction market from allowing sports bets. While the Trump administration is trying to help prediction markets avoid state regulation, a panel of three Trump-appointed judges unanimously ruled against Kalshi in today’s decision from the US Court of Appeals for the 9th Circuit.

The Nevada Gaming Control Board today said the 9th Circuit “emphatically reject[ed] the view that the federal Commodity Exchange Act preempts application of Nevada’s gaming laws to sports-event contracts offered by Kalshi, Crypto.com, and Robinhood.” Nevada Governor Joe Lombardo, a Republican, said that “prediction markets offering sports-event contracts constitute gambling and must comply with Nevada’s gaming laws and regulatory framework.”

The judges affirmed a district court order that let Nevada enforce state laws against Kalshi’s sports-related event contracts.

“KalshiEX, LLC advertises itself as ‘the first app for legal sports betting in all 50 states,’” wrote Judge Ryan Nelson. “As the volume of activity on Kalshi’s ‘sports betting’ platform ballooned, the Nevada Gaming Control Board sent a cease-and-desist letter notifying Kalshi that it was violating Nevada statutes and gaming regulations. Kalshi sought injunctive relief, arguing that it is not a legal sports betting platform but a designated contract market under the Commodity Exchange Act (CEA) offering legal sports event contracts. Kalshi argues that the Commodity Futures Trading Commission (CFTC) has exclusive regulatory authority over its sports event contracts and, therefore, Nevada’s gaming regulations do not apply.”

Sports bets aren’t swaps, judges rule

As in other cases involving Kalshi and state gambling laws, the key legal issue is whether a sports bet on a prediction market meets the definition of a “swap” that can only be regulated by the CFTC. The 9th Circuit ruling conflicts with a 3rd Circuit decision against New Jersey, which found that sports wagers on prediction markets are swaps. The circuit split increases the likelihood that the Supreme Court will take up the issue.

The CFTC has been suing states that try to regulate or ban prediction markets, saying it alone has jurisdiction over them. The CEA gives the CFTC exclusive jurisdiction over swaps, defined as “any agreement, contract, or transaction… that provides for any purchase, sale, payment, or delivery… that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”

Nelson wrote that sports event contracts offered on Kalshi are sports gambling, regardless of whether Kalshi calls them swaps. Quoting Shakespeare’s Romeo and Juliet—“that which we call a rose by any other name would smell as sweet”—Nelson wrote that “placing sports bets, even when called by another name, is still gambling.”

The broadest reading of the legal definition of swap “might cover the sports event contracts here and thus preempt Nevada law,” but the broad reading proposed by Kalshi conflicts with the larger statutory scheme and has no limiting principle, judges wrote. “Congress has spoken on the issue of gambling in other statutes,” and did not repeal or amend those laws in the Dodd–Frank Act, which gave the CFTC authority over swaps, the ruling said.

Nelson’s ruling was joined by Judge Bridget Bade, while Judge Kenneth Lee wrote a concurring opinion. Lee said he “agree[s] with the majority opinion that the more natural reading of ‘event’ under the statutory definition of a ‘swap’ would not include the outcome of a sporting event.”

“Few people would describe, say, the New York Mets’ latest loss of a game as an ‘event,’” Lee wrote. “Likewise, I do not think the outcome of a typical sports game is ‘associated with a potential financial, economic, or commercial consequence’ as required under the definition of a swap. Going back to the Mets example, perhaps in an uber-technical sense a Mets’ loss could have marginal economic impact as some fans guzzle more beer to drown away their sorrows. But it seems somewhat fanciful to say that the outcome of a single game in a 162-game season is likely ‘associated’ with a ‘financial, economic, or commercial consequence’ that one would expect in a swap contract.”

Trump admin’s lax regulation

The majority opinion said that CFTC regulations currently prohibit gaming contracts on prediction markets. That hasn’t stopped prediction markets from offering sports bets.

Designated contract markets (DCMs) can “self-certify” to the CFTC that any new contract complies with the rules and start offering the new contract the next business day, the ruling noted. The CFTC can review the contract and disallow it later.

The rules could change under a recent CFTC proposal that, according to a July 27 letter sent by 44 state attorneys general, defines gaming in a way that would “permit sports betting and other gambling contracts on DCMs.” The Trump administration has been favorably inclined toward prediction markets: Kalshi and Polymarket both have Donald Trump Jr. as an advisor, and Polymarket received investment from a Trump Jr.-backed venture capital firm.

While the CFTC hasn’t stopped Kalshi from offering sports bets, the 9th Circuit ruling said “Kalshi’s self-certification and listing of these contracts is unlawful.” The 9th Circuit criticized the 3rd Circuit ruling, stating that “our sister circuit essentially disregarded § 40.11’s prohibition on listing gaming-related transactions, when it said that the CFTC ‘has not yet acted to review or prohibit any sports-related event contracts.’”

The 9th Circuit noted that federal rules will change if the CFTC adopts its proposal, but said “the existing regulation controls” for now. “Because we disagree with Kalshi’s overly broad reading of the CEA, and because CFTC regulations currently prohibit offering contracts related to gaming on prediction markets, we affirm the district court’s order dissolving the injunction as to sports event contracts,” the ruling said.

Thorny question can wait for later

Lee’s concurring opinion said that US law “does not seem to categorically bar all gaming contracts,” and that it may be possible for “some unique sports events [to] be part of a swap trade if they meet the statutory requirements.” But he said the 9th Circuit doesn’t need to resolve that question yet.

“Ultimately, I do not think we need to resolve this thorny statutory interpretation question right now because 17 C.F.R. § 40.11 bars gaming contracts. While CFTC has proposed revising that regulation, it remains in the books and controls the outcome of this appeal,” Lee wrote.

While the appeals court agreed with the district court analysis that sports event contracts are not swaps, it said the lower court must still conduct an analysis of whether Kalshi’s election contracts should be defined as swaps. The lower court must “consider Nevada’s challenges to Kalshi’s election contracts consistent with this opinion,” the court said.

“Because the district court did not analyze whether Kalshi’s election contracts, which are illegal under Nevada law and a fraction of Kalshi’s business, fit within the CEA’s definition of swap, we remand for the district court to consider this issue in the first instance,” the court said.