Key insights
- A federally regulated exchange does not guarantee immunity from state gambling rules.
- Sports contracts face greater scrutiny than many other event-based financial products.
- Conflicting appellate rulings increase pressure for a nationwide legal resolution.
Kalshi lost a major legal fight on Aug. 28 after the Ninth Circuit cleared Nevada to enforce gambling laws against its sports contracts. The unanimous ruling says the contracts likely resemble sports bets rather than federally protected swaps, creating a direct conflict with another federal appeals court.
Ninth Circuit draws a line around sports contracts
The dispute began after Nevada regulators accused Kalshi of operating sports betting without required state licenses. Kalshi challenged the action and argued that federal commodities law gave the CFTC exclusive authority.
A federal district court initially granted Kalshi an injunction in April 2025. However, Judge Andrew Gordon later dissolved that protection after finding that the sports contracts likely fell outside the Commodity Exchange Act’s definition of swaps.
The Ninth Circuit reviewed that decision and reached the same result. Judges Ryan Nelson, Bridget Bade and Kenneth Lee ruled unanimously against restoring the injunction.
The panel focused on the nature of the contracts rather than their trading venue. Kalshi operates a CFTC-regulated designated contract market, but the court said that status does not automatically shield sports contracts from state gambling laws.
Judge Nelson wrote that the contracts carried the characteristics of traditional sports betting. He also rejected the broader argument that federal derivatives law could prevent states from regulating gambling.
The court noted that accepting Kalshi’s position could place much of the country’s sports wagering market under federal oversight. That interpretation, the judges found, would raise major questions about whether Congress clearly granted such authority.
Nevada gains enforcement power as dispute expands
The ruling allows Nevada gaming authorities to enforce state requirements against Kalshi’s sports-related contracts while the broader case continues. The court rejected Kalshi’s arguments based on express, impossibility and field preemption.
The judges also found that Kalshi had not demonstrated sufficient irreparable harm or shown that an injunction would serve the public interest.
Nevada regulators welcomed the decision as confirmation that sports betting remains subject to state supervision. The ruling also affects the wider prediction-market sector because similar products appear on platforms linked to Robinhood and Crypto.com.
Three developments now matter most
- Nevada can continue pursuing state enforcement against sports contracts.
- Kalshi faces a stronger challenge to its nationwide regulatory strategy.
- The federal disagreement could move toward Supreme Court review.
The ruling does not settle every product offered by the platform. Instead, the Ninth Circuit sent Nevada’s challenge involving election contracts back to the district court for further consideration.
Federal courts now disagree on the same question
The ruling is starkly different from the Third Circuit’s ruling. That court ruled in favor of Kalshi in an April case in New Jersey, restricting the power of the state to police the federally registered platform.
In Nevada, the Ninth Circuit had other views on sports contracts. That battle provides the Supreme Court with further justification for hearing the case, but it’s not a duty for the justices to take it up.
Kalshi has said that it will appeal for further review. The company has argued that federal law does not allow states to regulate trading on exchanges, which are licensed by the federal government.
The CFTC is under pressure from the disagreement as well. The agency has said derivatives that are designed as swaps are subject to federal regulation. The Ninth Circuit’s reading has a greater focus on the underlying activity.
The result may impact the cross-border use of prediction markets. It could also decide if sports contracts are treated like financial derivatives or not.
Industry stakes rise as prediction markets grow
The clash comes as prediction markets are becoming more common in a variety of mainstream sports and political betting. Judicial decisions in various states have reached conflicting results; operators in various parts of the country are protected differently.
The Ninth Circuit ruling may bolster state regulators who want licenses, age requirements and consumer protection. But a Supreme Court review could set one nationwide rule for what counts as a prediction-market jurisdiction.
It is obvious that Kalshi will suffer as a result. Nevada can hold off on its regulatory battle until the company appeals further.
The more overarching question is: Who is in charge of prediction markets when money and gambling collide? Operators and regulators will keep pushing the limits in various jurisdictions until it is decided by higher courts.
Conclusion
The Ninth Circuit ruling marks a significant setback for Kalshi’s sports-market strategy. It also bolsters Nevada’s position and extends an existing split in the Federal court system.
The Supreme Court may ultimately decide whether states can regulate sports prediction contracts or whether federal derivatives law trumps.
