Federal Appeals Court Backs Nevada in Major Prediction Markets Ruling

A federal appeals court has handed Nevada a significant victory in its ongoing battle with prediction markets, ruling that the state can enforce its gambling laws against Kalshi’s sports event contracts. The unanimous decision Friday from the 9th U.S. Circuit Court of Appeals upheld a lower-court ruling that dissolved an injunction previously protecting Kalshi from Nevada regulators. The decision means Kalshi cannot offer its sports event contracts in Nevada without complying with the state’s gaming laws. The ruling could also have much broader consequences. Prediction markets have expanded rapidly in recent years, particularly in sports, while states and federal regulators have taken sharply different positions over whether the contracts should be treated as gambling or federally regulated financial products.

Nevada Wins Key Regulatory Battle

The dispute began after the Nevada Gaming Control Board ordered Kalshi to stop offering sports-related contracts without a state gaming license. Kalshi countered that it operates a federally regulated designated contract market under the Commodity Exchange Act and falls under the jurisdiction of the Commodity Futures Trading Commission. The 9th Circuit rejected that argument as it applies to sports contracts. Judge Ryan Nelson wrote that Kalshi’s interpretation of federal commodities law was too broad. The court concluded that its sports event contracts aren’t “swaps” protected from state regulation and noted that existing CFTC regulations prohibit designated contract markets from listing gaming-related contracts. The court therefore allowed Nevada to enforce its gaming regulations against Kalshi’s sports products. Questions surrounding Kalshi’s election contracts were sent back to the district court for additional consideration. The decision also affects a much larger fight. Similar disputes involving prediction markets are playing out across numerous states, with Nevada, Massachusetts, Michigan and Washington among states that have secured court orders restricting Kalshi’s activities.

Are Prediction Markets Gambling or Financial Markets?

At the heart of these cases is a fundamental disagreement over exactly what prediction markets are. Kalshi and the CFTC have argued that event contracts belong within the federal derivatives framework. Under that interpretation, federal commodities law can preempt state attempts to regulate those products as gambling. Nevada and other states take the opposite position. They argue that contracts allowing customers to stake money on whether a team wins a game are functionally sports wagers, regardless of whether they are structured as exchange-traded contracts. The 9th Circuit largely sided with that interpretation. Nelson wrote that the CFTC is not a national gambling regulator and rejected the idea that Congress intended federal financial reform legislation to displace states’ traditional authority over gambling and allow companies to offer sports prediction markets without regulation. Judge Kenneth Lee’s concurrence added some nuance, suggesting federal law may not categorically prohibit every possible gaming-related contract. For now, however, he said existing CFTC regulations control the issue.

Differing Court Opinions Could Lead to Supreme Court

Perhaps the most important aspect of the decision is that federal appeals courts now disagree on the central legal question. In April, the 3rd U.S. Circuit Court of Appeals reached a different conclusion in litigation involving New Jersey, ruling that the state could not regulate Kalshi’s platform. The 9th Circuit’s Nevada decision now creates a significant circuit split. That disagreement substantially increases the possibility that the Supreme Court could eventually settle the issue. Legal experts had already suggested the growing number of conflicting prediction-market cases could produce Supreme Court review. With two federal appellate courts now reaching different conclusions about state authority and federal preemption, there is a much clearer path for the justices to consider whether prediction-market sports contracts should primarily fall under federal commodities regulation or state gambling laws. Kalshi has said it will seek further review of the Nevada ruling. In the meantime, its sports, entertainment and election contracts remain blocked in Nevada. The outcome could ultimately determine far more than Kalshi’s future in Nevada. A Supreme Court decision could establish the regulatory framework for prediction markets nationwide and determine whether states can require platforms offering sports event contracts to follow the same licensing, taxation and consumer-protection rules imposed on traditional sportsbooks.