Kalshi Loses 9th Circuit Appeal, Setting Up Potential Supreme Court Showdown

_{Nevada earned an early win against Kalshi, which tried to prevent a ban on prediction markets but saw the Ninth U.S. Circuit Court of Appeals rule in the state's favor. (Photo: ZUMA Press, Inc.)}

The Ninth Circuit Court of Appeals rejected requests from Kalshi and Crypto.com on Friday to stop Nevada from banning the prediction markets from offering sports event contracts in the state, a move that sets up a clear division between different circuit courts at the federal level.

The court also turned down Robinhood’s request for injunctive relief against the Nevada Gaming Control Board, while finding that the sports event contracts should not be classified as swaps under the Commodity Exchange Act (CEA).

Court: Sports Event Contracts ‘Likely’ Not Swaps

Both the prediction markets and the Commodity Futures Trading Commission (CFTC) have argued that all (or nearly all) event contracts are classified as swaps, regardless of the underlying event. As such, the CFTC says it has exclusive jurisdiction over event contracts and, therefore, those financial instruments – and the prediction markets that offer them – are exempt from state regulation.

However, the 9th Circuit disagreed, agreeing with state officials in Nevada and elsewhere who have pointed to the federal government’s traditional and overwhelming deference to states on matters of gambling.

“Because Congress has spoken on the issue of gambling in other statutes (and did not impliedly repeal or amend those statutes through Dodd-Frank), there is no limiting principle to Kalshi’s broad reading of the definition of swap,” the court's ruling said. “Adopting that reading would assume that, by granting the CFTC regulatory authority over gaming nationwide, Congress ‘hid an elephant in a mousehole.’ Thus, we conclude that these sports event contracts are likely not swaps under the CEA.”

The court concluded that sports event contracts are "likely not swaps under the CEA." It also rejected other arguments, including the idea that state regulations were preempted by the concept of “conflict preemption,” and said that there was “legitimate concern” that the CFTC actually holds exclusive jurisdiction over these financial products.

States, CFTC Heading Towards Supreme Court Showdown

The Nevada Attorney General’s office celebrated the news of the ruling.

“Kalshi sought to sidestep Nevada’s gaming laws by claiming its sports wagering products were federally regulated financial instruments beyond the reach of state regulators,” Deputy Communications Director Alcinia Whiters said in a statement. “The Ninth Circuit rejected that argument and made clear what we have maintained from the beginning: sports betting does not become something else simply because a company calls it an ‘event contract.’”

The CFTC released its own statement saying that the appeals court got it wrong in making its ruling.

“A derivative contract structured as a swap is a swap regardless of the underlying subject matter – the only exceptions in statute are onions and movie box office receipts,” a CFTC spokesperson said in a statement. “The Ninth Circuit erred today when it invented a new and atextual exception to the CEA.”

The ruling contradicts a previous decision from the Third Circuit Court of Appeals in April, which found that Kalshi’s sports event contracts were considered swaps. That sets up a split at the appellate level, which may well fast-track the case to the Supreme Court. Further cases on the issue are also before appellate courts in the Second, Fourth, Sixth, and Seventh Circuits.

Refer to Cashback Terms & Conditions for full program terms.