Ninth Circuit Hands States a Major Win Against Kalshi as Judges Call Sports Contracts 'Bets'
Key Points
- The Ninth Circuit held that Nevada can enforce its gaming laws against Kalshi’s sports markets, delivering the strongest appellate win yet for states challenging sports prediction markets.
- The panel concluded Kalshi’s sports event contracts are sports bets rather than “swaps” protected by the Commodity Exchange Act’s federal preemption provisions.
- The ruling conflicts directly with the Third Circuit’s April decision protecting Kalshi from enforcement in New Jersey, creating opposing appellate interpretations of the same federal law.
- Arizona Attorney General Kris Mayes says her office is reviewing the decision’s implications for its own Kalshi litigation.
Ninth Circuit Rejects Kalshi’s Core Preemption Argument
The Ninth Circuit ruled on August 28 that Kalshi had not shown the Commodity Exchange Act likely prevents Nevada from applying state gambling laws to its sports event contracts. The 3-0 panel therefore affirmed the dissolution of the federal injunction that had previously protected Kalshi from Nevada enforcement.
Kalshi’s argument has rested on its status as a Commodity Futures Trading Commission regulated designated contract market. The company contends its sports event contracts qualify as swaps under federal commodities law, putting trading on its exchange within the CFTC’s exclusive jurisdiction and outside state gambling regulators’ reach.
The Ninth Circuit accepted that federal law preempts state regulation of qualifying swaps traded on a designated contract market. Kalshi lost on the question immediately before that one: whether these sports contracts qualify as swaps in the first place.
The court says Kalshi’s sports contracts are bets, not swaps
Writing for the panel, Judge Ryan Nelson compared Kalshi’s markets with wagers available at conventional sportsbooks, including point spreads, player props, exact scores and multi-leg bets. The court concluded their economic substance was sports gambling even though the contracts were traded through an exchange structure.
The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling - Judge Ryan Nelson
That finding cuts into the foundation of Kalshi’s preemption theory. The Commodity Exchange Act gives the CFTC exclusive jurisdiction over certain federally regulated derivatives, but the Ninth Circuit said that protection does not attach simply because a sports wager is listed on a designated contract market.
The panel also rejected Kalshi’s broader reading of the statutory swap definition, reasoning that traditional swaps are associated with transferring or hedging financial risk. Kalshi’s sports contracts, the court said, instead create risk for consumers based on the outcome of sporting events.
Kalshi also lost on the CFTC’s current gaming rule
The Ninth Circuit separately found that Kalshi’s self-certification and listing of the sports contracts conflicted with CFTC Regulation 40.11, which currently prohibits registered entities from listing certain event contracts that involve, relate to or reference gaming.
'That portion of the ruling is particularly awkward for Kalshi because the CFTC itself supports broad federal authority over prediction markets. The Commission is already trying to modernize Rule 40.11 and in June proposed a new framework for deciding when event contracts involving activities such as gaming should be subject to public-interest review.
Nevada Gaming Control Board Chairman Mike Dreitzer said in an official statement following the ruling that the decision “completely vindicates what we have been saying all along,” adding: “This is sports betting and needs to be properly regulated by the state.”
The Third and Ninth Circuits now disagree
The Ninth Circuit’s interpretation runs directly against the Third Circuit’s April 6 ruling in KalshiEX LLC v. Flaherty. In that case, a 2-1 panel concluded Kalshi’s sports event contracts do qualify as swaps and upheld an injunction preventing New Jersey regulators from enforcing their gambling laws against the platform.
The two appellate courts have therefore reached opposite answers to the question sitting at the center of Kalshi’s national litigation strategy.
In emailed statements reported by The Block after Friday’s ruling, CFTC spokesperson Zach Fulton said the Ninth Circuit had “teed up a circuit split that calls out for resolution by the Supreme Court.” Kalshi spokesperson Dani Lever said the company continues to believe the CFTC’s regulations permit its sports contracts and confirmed: “We will be seeking further review.”
The Ninth Circuit did not settle every part of the Nevada dispute. It sent questions surrounding Kalshi’s election contracts back to the district court because that court had not separately decided whether those products satisfy the Commodity Exchange Act’s swap definition.
Why This Matters For Bettors
For bettors in Nevada, the practical effect is less dramatic than the legal headline. Kalshi had already agreed to stop users inside the state from accessing prohibited sports, election and entertainment contracts after Nevada obtained a state-court injunction and later demanded stronger geofencing.
The August 28 ruling reinforces that enforcement position rather than suddenly removing a product that was freely available the day before.
The bigger issue is what happens elsewhere in the Ninth Circuit. A published Ninth Circuit opinion carries substantial weight across the federal courts within its jurisdiction, giving western state regulators a far stronger answer when platforms argue that CFTC oversight automatically blocks state gambling laws. The Ninth Circuit covers nine states, including Arizona, where Kalshi is already fighting state enforcement.
Mayes said in an official statement that her office is reviewing the opinion “including its implications for our own ongoing litigation with Kalshi.” That is an early indication of how quickly regulators may try to use the Nevada ruling in other cases.
For bettors, that raises the possibility of a more fragmented market. Sports contracts could remain accessible under one federal circuit’s interpretation while facing state licensing requirements or outright enforcement elsewhere. Platforms may respond with additional geofencing, narrower product menus or temporary withdrawals while cases move through the courts.
There is also a competitive consequence for traditional sportsbooks. Prediction markets have been able to challenge licensed books with sports products while arguing that federal commodities regulation gives them a different regulatory lane. If more courts adopt the Ninth Circuit’s reasoning, that distribution advantage becomes harder to maintain.
Platforms offering sportsbook-like markets could increasingly face the same state licensing boundaries that already govern DraftKings, FanDuel and other licensed operators.
The ruling should not be stretched further than that. It does not officially classify every prediction market contract as gambling, it does not resolve Kalshi’s election markets, and it does not end the federal-state jurisdiction fight.
What it does provide is the first appellate ruling squarely rejecting the idea that placing a sports bet on a federally registered exchange necessarily transforms that bet into a federally protected swap.
What Happens Next
Kalshi has said it will seek further review. That could include rehearing before a larger Ninth Circuit panel and, ultimately, a petition asking the Supreme Court to take the case. The genuine conflict with the Third Circuit gives the Supreme Court a clearer reason to intervene, but review remains discretionary.
The CFTC’s Rule 40.11 proceeding will move on a separate track. Regulatory changes could clarify how the agency treats sports event contracts, but agency rulemaking alone cannot simply erase the Ninth Circuit’s interpretation of the Commodity Exchange Act.
More immediately, watch the states already litigating against Kalshi. Arizona has publicly confirmed it is reviewing the opinion, while Nevada says it will continue enforcing its gaming laws.
If regulators elsewhere in the Ninth Circuit begin relying on the ruling, the legal split will start producing visible differences in where bettors can access sports prediction markets.
Marcus has spent over 20 years navigating the legal side of online betting - from his early days consulting for offshore operators to helping licensed U.S. sportsbooks launch in regulated markets. He’s worked with compliance teams, reviewed licensing frameworks in 15+ states, and advised on some of the biggest regulatory shifts since PASPA was repealed.
At BettingScanner, Marcus serves as the voice of reason - translating legalese into plain English and helping bettors understand what’s legal, what’s risky, and where the gray areas live. If you’re ever unsure about the rules, Marcus is your man - as he probably helped write them.
