A federal appeals court has dealt a major setback to prediction-market operator Kalshi, ruling that Nevada may apply its gambling laws to the company’s sports-event contracts despite Kalshi’s status as a federally regulated derivatives exchange. The unanimous Ninth Circuit panel rejected Kalshi’s argument that the federal Commodity Exchange Act prevents state gaming regulators from exercising authority over sports contracts, concluding that the products function as sports gambling regardless of how they are labeled. The ruling strengthens states seeking to preserve their traditional authority over gambling while creating a direct conflict with an earlier Third Circuit decision favoring Kalshi in New Jersey. That growing circuit split, combined with legal disputes involving prediction markets in roughly 20 states, substantially increases the possibility that the Supreme Court will ultimately determine where federal commodities regulation ends and state gambling authority begins.
Key Takeaways
- The Ninth Circuit concluded that Kalshi failed to demonstrate that federal commodities law preempts Nevada’s authority to regulate sports-event contracts as gambling.
- The decision conflicts with an earlier Third Circuit ruling involving New Jersey, creating an important appellate split over whether states or federal regulators have primary authority over prediction markets.
- With prediction-market operators expanding rapidly into sports, elections and other event-based contracts, the dispute raises a broader federalism question over whether federally regulated financial structures can displace traditional state gambling laws.
In-Depth
A federal appeals court has strengthened state authority over sports betting by rejecting Kalshi’s attempt to shield its sports-event contracts from Nevada gambling regulation. The unanimous Ninth Circuit panel concluded that Kalshi had not shown the Commodity Exchange Act preempts Nevada law, rejecting the argument that sports wagers become federally protected financial instruments merely because they are structured as event contracts.
The decision matters well beyond Nevada. Kalshi operates as a federally designated contract market regulated by the Commodity Futures Trading Commission and argues that federal commodities law gives the CFTC exclusive jurisdiction over its products. Nevada counters that contracts tied to sporting outcomes are, in substance, sports bets and therefore remain subject to the state’s gaming laws and licensing requirements.
That position prevailed at this stage. The ruling leaves Kalshi unable to resume its sports-event business in Nevada without satisfying state requirements while litigation continues. The court separately returned questions involving election contracts to the district court for further consideration.
More importantly, the decision deepens a federal appellate split. The Third Circuit previously reached a different conclusion in litigation involving New Jersey, strengthening Kalshi’s federal-preemption position there. With roughly 20 states engaged in disputes over prediction markets, conflicting appellate rulings make eventual Supreme Court review increasingly plausible.
The broader principle is significant: federal financial regulation does not automatically erase traditional state police powers. Prediction markets may represent financial innovation, but courts must still determine whether new terminology changes the underlying activity or simply repackages regulated gambling.
Sources
- https://www.reuters.com/world/kalshi-cannot-block-nevada-oversight-sports-prediction-markets-us-appeals-court-2026-08-28/
- https://apnews.com/article/nevada-kalshi-prediction-markets-gambling-polymarket-2168b6c0837ad9b4f0f63b04633d8835
- https://law.justia.com/cases/federal/appellate-courts/ca9/25-7516/25-7516-2026-08-28.html
- https://prod.gaming.nv.gov/about-us/press-releases-public-statements/