A federal appeals court has dealt a setback to prediction market platforms, ruling that sports-related event contracts are gambling offerings and not federally regulated derivatives. The Ninth Circuit Court of Appeals rejected requests by Kalshi, Crypto.com, and Robinhood to block Nevada’s gaming regulator from halting their operations, affirming that the contracts fall under state gambling laws rather than federal oversight.
The decision marks a critical development in a broader legal conflict over who has authority to regulate prediction markets—platforms that allow users to bet on outcomes of sports, elections, and other events. The Commodity Futures Trading Commission (CFTC), which had argued that all event contracts are swaps under its jurisdiction, called the ruling an error. A CFTC spokesperson stated that the court misinterpreted the Commodity Exchange Act (CEA), asserting that swaps are defined by their structure, not their underlying subject matter. The agency has sued nine states to defend its claim of exclusive regulatory authority over prediction markets.
The ruling aligns with the position of 44 states, which argue that sports-related event contracts are indistinguishable from traditional sports betting. The court’s opinion, written by Judge Ryan Nelson, explicitly stated that the contracts offered by Kalshi are sports gambling, regardless of how the platform labels them. This contrasts with a separate decision in April from the Third Circuit Court of Appeals, which ruled that the CFTC has exclusive control over sports-related event contracts on federally licensed exchanges like Kalshi. The conflicting rulings have intensified the legal uncertainty surrounding prediction markets.
Kalshi has indicated it will seek further legal recourse, arguing that federal law prevents states from regulating trading on federally licensed exchanges. The company stated it believes the CFTC’s regulations do not prohibit sports contracts and that the agency is working to clarify its rules. The dispute is expected to escalate to the U.S. Supreme Court, as roughly 20 states are already involved in litigation over the issue. Legal experts suggest the Supreme Court may ultimately decide which level of government—federal or state—has primary authority over these markets.
The CFTC’s stance hinges on its interpretation of the CEA, which defines swaps as derivative contracts regulated exclusively by the agency. The law explicitly excludes certain contracts, such as those tied to onions or movie box office receipts, but does not mention sports or other event-based contracts. The CFTC’s spokesperson emphasized that the court’s decision created an “atextual exception” to the law, undermining the agency’s regulatory framework. Meanwhile, Nevada’s gaming regulators have maintained that their authority over gambling-related contracts remains intact, arguing that prediction markets operating without proper state licenses violate existing laws.
The legal battle underscores broader tensions between federal and state regulatory powers, particularly in emerging financial technologies. Prediction markets have gained popularity as tools for hedging risks or speculating on future events, but their legal status remains unresolved. The outcome of this case could determine whether these platforms operate under state gambling laws or federal derivatives regulations—a distinction that could shape the future of the industry.