Ninth Circuit rules against Kalshi in Nevada sports betting jurisdiction fight

Appeals court sides with Nevada over Kalshi

A federal appeals court has ruled against Kalshi in its legal battle with the state of Nevada. The U.S. Court of Appeals for the Ninth Circuit decided on Friday that the prediction markets platform did not prove that federal law overrides Nevada’s authority to regulate sports betting.

This decision supports a lower court’s earlier ruling. The lower court had initially granted Kalshi an injunction to stop Nevada from regulating its activities, but later removed that protection after a separate ruling against another company, Crypto.com.

Jurisdiction under the Commodity Exchange Act

The case centers on who has the power to oversee sports betting contracts: the federal government or individual states.

Kalshi argued that the Commodity Exchange Act (CEA) and the federal regulator behind it, the Commodity Futures Trading Commission (CFTC), have exclusive control over these markets. Under this view, state laws should not apply to Kalshi’s trading of election and sports event contracts.

However, the three-judge panel concluded that the CEA likely does not block Nevada from applying its own gaming regulations to Kalshi’s sports contracts.

CFTC and Kalshi push back

Both the CFTC and Kalshi disagreed with the ruling. A CFTC spokesperson stated that the appeals court misunderstood the statute and regulations. The spokesperson added that this case now sets up a conflict between different federal circuit courts, which they believe needs to be resolved by the Supreme Court.

The spokesperson also argued that a derivative contract structured as a swap remains a swap regardless of the subject matter, claiming the court invented a new exception that does not exist in the law.

Kalshi also responded, with a spokesperson saying the company still believes CFTC regulations do not prohibit sports contracts. They noted that the CFTC is working to clarify these rules and confirmed that they are seeking further legal review of the decision.

Broader clash between states and federal regulators

This dispute is part of a larger tension between state officials and the CFTC regarding prediction markets, an industry now worth billions of dollars. State regulators have raised concerns about platforms offering sports-related contracts, arguing they amount to gambling and violate state gaming laws.

Meanwhile, CFTC Chair Michael Selig has maintained that his agency has exclusive jurisdiction over prediction markets. The CFTC has recently sued several states over these regulatory differences and has proposed a new framework for how the industry should be regulated.

What happens next

Following the Ninth Circuit's decision, Kalshi plans to seek further review of the case. The CFTC has also indicated that the legal conflict is ready for the Supreme Court to address.

Sources

• The Block