Ninth Circuit Says Kalshi Sports Contracts Are Not Swaps, Allowing Nevada Enforcement

Nevada can enforce gaming laws against Kalshi

The Ninth Circuit ruled on Aug. 28 that Kalshi’s sports event contracts are not swaps under the Commodity Exchange Act. The panel upheld the removal of an injunction that had stopped Nevada from enforcing its gaming laws against the prediction market.

The decision conflicts with an April ruling from the Third Circuit involving the same company and product. That court concluded that the contracts qualify as swaps and blocked New Jersey from applying its gambling laws.

The main findings

• The Ninth Circuit found that a sporting event’s result is different from whether the event itself occurs.
• Because the contracts are not swaps, the panel found that exclusive federal oversight does not prevent Nevada from acting.
• The court said Kalshi unlawfully listed the sports contracts through self-certification, a process that does not require prior Commodity Futures Trading Commission approval.
• Both the Nevada and New Jersey cases remain at an early stage and have not produced final judgments on the merits.
• The Ninth Circuit sent Nevada’s challenge to Kalshi’s election contracts back to the district court for further review.

How the Ninth Circuit read the law

The Commodity Exchange Act defines a swap to include an agreement tied to the occurrence, nonoccurrence or extent of an event. Kalshi argued that its sports contracts fit this definition and therefore fell under exclusive Commodity Futures Trading Commission oversight.

The panel rejected that interpretation. It distinguished between an event taking place and the outcome of that event. In its example, whether the Super Bowl happens is an occurrence, while whether a particular team wins is an outcome.

The court also relied on a CFTC rule covering event contracts connected to gaming. It found that Kalshi’s self-certification of the sports contracts was unlawful under that rule and the Commodity Exchange Act’s special provisions for event contracts.

Judges Ryan Nelson, Bridget Bade and Kenneth Lee heard the case. Nelson wrote the opinion. Lee filed a separate concurrence agreeing with the majority’s reading while noting that the law appears to give the CFTC discretion over whether to prohibit gaming contracts.

Federal appeals courts reach opposite conclusions

The Third Circuit reached the opposite preliminary conclusion on April 6. Its 2-1 majority found that sports outcomes can have financial, economic or commercial consequences and can therefore qualify as swaps.

That court found that federal law prevented New Jersey from enforcing its gambling laws against the contracts. Judge Roth dissented, arguing that states have traditionally regulated gambling and that courts should presume against federal displacement of state authority in this area.

The result is different treatment for the same Kalshi product. Nevada may enforce its gaming rules under the Ninth Circuit decision, while New Jersey remains blocked under the Third Circuit ruling.

The lawsuits remain unresolved

Neither appeals court issued a final judgment on the underlying claims. Both decisions concerned preliminary injunctions and whether Kalshi was likely to succeed at that stage of litigation.

The Ninth Circuit ruling addresses Kalshi’s sports contracts only. The panel returned Nevada’s challenge to the company’s election contracts to the district court for reconsideration under its new opinion.

Source

• The Defiant