Kalshi Faces Court Setback as Judge Upholds State Authority Over Prediction Markets

A new U.S. appeals court decision has deepened the legal divide over event contracts, increasing the possibility that the Supreme Court could ultimately be asked to resolve the dispute.

Kalshi and the wider U.S. prediction market sector are facing renewed legal pressure after a federal appeals court rejected the company’s position that Nevada lacked authority to regulate its sports-related contracts.

A unanimous panel of the U.S. Court of Appeals for the Ninth Circuit ruled Friday against Kalshi’s argument that Nevada regulators had no jurisdiction over its activities because the company operates through a platform overseen by the Commodity Futures Trading Commission under the Commodity Exchange Act.

The court determined that the CEA likely does not prevent Nevada from applying its gambling laws to Kalshi’s sports event contracts. The judges also rejected the company’s position that the contracts should be treated as swaps subject exclusively to CFTC oversight. In the court’s view, the contracts were sports wagers rather than swaps under federal commodities law.

Court Split Raises Supreme Court Stakes

The decision does not provide a definitive nationwide answer for prediction markets. Instead, it adds another layer of uncertainty because a different federal court reached the opposite conclusion earlier this year.

In April, another federal court ruled that New Jersey could not regulate Kalshi’s operations, creating conflicting interpretations among federal courts. The emerging split could increase pressure on the U.S. Supreme Court to determine how federal commodities law interacts with state gambling regulations.

CFTC spokesperson Zach Fulton criticized the Ninth Circuit’s interpretation, arguing that the court had misapplied the Commodity Exchange Act.

Fulton said the decision effectively creates a circuit split that warrants Supreme Court review. He argued that a derivative contract structured as a swap remains a swap regardless of what the contract concerns, pointing to the limited statutory exceptions for onions and movie box-office receipts.

Nevada Says Kalshi Is Engaged in Sports Betting

Nevada regulators have opposed prediction market operators since 2025, maintaining that companies offering sports-related event contracts are conducting gambling activities without the required state authorization.

The Gaming Control Board reiterated that position following Friday’s ruling, even though Kalshi had already withdrawn from Nevada and several other states following regulatory actions.

Nevada Gaming Control Board Chairman Mike Dreitzer said the ruling supported the state’s long-standing position that these contracts constitute sports betting and should therefore fall under state gambling regulation.

The ruling also referenced sports-related contracts offered through platforms including Robinhood and Crypto.com, potentially broadening the significance of the legal dispute beyond Kalshi.

Kalshi Plans Further Legal Action

Kalshi emphasized another aspect of the ruling, arguing that the Ninth Circuit still agreed with a separate federal appeals court on an important question involving federal authority.

Kalshi spokesperson Dani Lever said the Ninth Circuit agreed with the Third Circuit that federal law prevents states from regulating trading conducted on federally licensed exchanges such as Kalshi.

The company nevertheless disagrees with the Ninth Circuit’s broader conclusion concerning sports contracts. Kalshi maintains that existing CFTC regulations do not prohibit such contracts and noted that the federal agency is considering changes to clarify the rules.

Lever said Kalshi intends to pursue additional judicial review.

Prediction Markets Face Growing Legal Battles

Kalshi and other prediction market operators have spent months fighting state regulators across the country, with numerous cases now moving through state and federal courts.

Connecticut filed the latest lawsuit earlier this week, adding to the growing number of challenges facing the industry.

At the same time, Kalshi’s federal regulator, the CFTC, is pursuing its own legal actions. The agency has argued in several cases that federal law gives it exclusive authority over Kalshi and similar prediction market platforms.

The ruling was welcomed by parts of the traditional sports betting industry. The American Gaming Association called the decision a victory for consumer protection and state tax revenues, while criticizing Kalshi and other prediction market companies for operating sports betting products outside state regulatory frameworks.

The conflicting rulings leave the legal status of sports event contracts unsettled and could make Supreme Court intervention increasingly likely.

About The Author