Prediction markets just took one of their biggest legal hits yet. The Ninth Circuit Court of Appeals ruled against Kalshi in its fight with Nevada regulators, giving states a significant victory in the ongoing battle over sports event contracts. The decision does not settle the national debate, but it makes an already messy legal landscape even harder for the industry to navigate.
The three-judge panel rejected Kalshi's attempt to keep Nevada from enforcing its state gaming laws against the exchange's sports contracts. Kalshi maintains that its federally regulated status places those contracts under Commodity Futures Trading Commission authority. Nevada has argued that the products fall within an area the state can regulate.
Nevada Scores an Important Court Victory
The dispute centers on whether Kalshi's sports event contracts qualify as swaps under the Commodity Exchange Act. The Ninth Circuit concluded that Kalshi had not shown it was likely to succeed on its argument that federal law preempts Nevada's regulation of those contracts. That allows Nevada's enforcement effort to move forward while the broader litigation continues.
Kalshi has already made clear it is not finished fighting. A company spokesperson said Kalshi still believes CFTC regulations permit sports contracts and confirmed it will seek further review. For prediction markets, that next round of appeals could prove far more important than this single Nevada dispute.
One Country Now Has Two Very Different Answers
What makes Friday's ruling especially important is what happened earlier this year in another federal appeals court. The Third Circuit reached a different conclusion in a case involving New Jersey, providing Kalshi with protection against state enforcement there. Now two federal circuits have taken conflicting approaches to essentially the same regulatory question.
That split creates several immediate problems:
- Kalshi faces different legal environments depending on the state.
- Other states could lean on the Ninth Circuit ruling in their own challenges.
- Platforms may need increasingly complicated state-by-state compliance strategies.
- The likelihood of eventual Supreme Court involvement appears to be growing.
The Ninth Circuit covers California, Arizona, and several other Western states, making its decision relevant well beyond Nevada. Related litigation is already playing out across the country, while dozens of state attorneys general have challenged the industry's federal-only regulatory approach.
Sports Contracts Remain the Center of the Fight
The legal disagreement has grown more important as sports have become a major source of prediction market activity. State officials argue that contracts tied to game outcomes and player performance belong under the regulatory systems they already use for traditional sportsbooks. Kalshi and supporters of the federal model argue that exchange-traded event contracts are financial products governed by federal commodities law.
Congress could theoretically resolve the conflict before the Supreme Court gets involved. Lawmakers have held hearings and introduced proposals related to prediction market integrity, insider information and advertising, but no broader regulatory framework has passed. For now, the courts are doing much of the work of defining where federal authority ends and state power begins.
The Trade Handle Prediction Markets Take
We think the biggest story here is no longer simply whether Kalshi won or lost one case. Prediction markets now have conflicting federal appellate decisions, exactly the kind of situation that can make Supreme Court review increasingly attractive. Until somebody provides a nationwide answer, platforms could face very different rules depending on where you happen to be located.
That uncertainty also creates a practical problem for an industry built around national exchanges. Kalshi can continue appealing, Congress could intervene, or the Supreme Court could eventually settle the dispute. One thing is becoming clear: the fight over who controls sports prediction markets is moving much closer to a showdown.