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Bonus TL;DR
- The 9th Circuit ruled that Nevada can regulate Kalshi’s sports contracts as gambling, directly splitting with the 3rd Circuit.
- This circuit split significantly increases the likelihood that the U.S. Supreme Court will review prediction market state regulation.
The 9th U.S. Circuit Court of Appeals ruled for Nevada and against Kalshi, creating a direct split with the 3rd Circuit on whether Kalshi’s sports event contracts are governed by federal commodities law or state sports betting rules.
That split matters because it raises the odds that the U.S. Supreme Court will step in to decide whether states can enforce gaming laws against prediction market operators offering sports-related contracts. For operators, regulators, and sportsbooks, the question is whether these products are federally regulated swaps or simply sports bets under another label.
The Sportico analysis says the 9th Circuit held that state sports betting laws can apply to Kalshi in Nevada. That means Nevada can require prediction market operators to obtain gaming licenses if they want to serve customers in the state.
Judge Ryan Nelson, joined by Judge Bridget Bade, wrote the majority opinion. Nelson wrote that Kalshi’s sports event contracts have “all the hallmarks of sports betting” and said it would be difficult to distinguish a traditional sports bet from one of Kalshi’s contracts. In another passage, he wrote, “In either scenario, the customer’s actions fit the definition of a gambling contract.”
9th Circuit breaks with earlier 3rd Circuit decision
The new ruling conflicts with an earlier 3rd Circuit decision that sided with Kalshi and found that the Commodity Exchange Act preempts conflicting state laws that directly interfere with swaps traded on a CFTC-licensed designated contract market.
According to the source analysis, Kalshi argues that it is a designated contract market authorized by the CEA and that the Commodity Futures Trading Commission has exclusive authority over these event contracts. The 9th Circuit rejected that view in the Nevada dispute, concluding the contracts are not swaps and instead amount to sports bets.
Judge Kenneth Lee wrote separately to concur, praising the majority’s “excellent textual analysis of the relevant provisions of the CEA.” He also questioned whether the outcome of a single baseball game naturally fits the type of financial or commercial consequence expected in a swap contract.
Why Supreme Court review now looks more likely
Circuit splits are one of the clearest paths to Supreme Court review, and the Sportico piece says the Court could address sports prediction markets within the next year. The article notes the Court rejects about 99% of petitions, but conflicting appellate rulings improve the chances of review.
A related sign of movement is that Justice Samuel Alito extended the deadline for New Jersey Division of Gaming Enforcement Interim Director Mary Jo Flaherty to file a certiorari petition seeking review of the 3rd Circuit decision.
The stakes extend beyond Kalshi. The source notes that 39 states, plus Washington, D.C., and Puerto Rico, offer legalized sports betting. It also says Kalshi has advertised itself as “the first app for legal sports betting in all 50 states” while arguing in court that state sports betting laws do not apply to its products.
What happens next is whether the Supreme Court agrees to hear one of the cases and, if it does, whether it ultimately treats sports event contracts as federally regulated market products or as gambling subject to state licensing and enforcement.
Source: As reported by Michael McCann.
