States Can Regulate Prediction Markets as Gambling, Ninth Circuit Rules

A federal appeals court ruled on Aug. 28 that Nevada can enforce its gambling laws against Kalshi's sports contracts. It is the first time Kalshi has lost at this level of the court system.

The 9th U.S. Circuit Court of Appeals upheld a lower court's decision to lift the order that had been protecting Kalshi from the Nevada Gaming Control Board, according to the published opinion. All three judges agreed.

The court did not decide whether Nevada can also act against Kalshi's election contracts. It sent that question back to the lower court.

Judges Say a Sports Bet Is a Sports Bet

Kalshi's central argument has been that its contracts are not bets but "swaps," a kind of financial contract that only federal regulators can oversee. That would put them beyond the reach of state gambling laws. The panel rejected that.

The substance of the sports event contracts offered on Kalshi's DCM is sports gambling, regardless of whether Kalshi calls them swaps.

Circuit Judge Ryan D. Nelson wrote the opinion. "DCM" is the federal term for the exchange Kalshi runs. Circuit Judges Bridget S. Bade and Kenneth K. Lee joined him, and Lee added a short separate opinion of his own.

The judges found Kalshi had not shown that federal law overrides Nevada's gambling rules for its sports contracts. They called Kalshi's efforts to distinguish its products from sportsbook betting "unpersuasive," and said that for the company to deny its contracts are sports bets "under a reasonable person's understanding is disingenuous."

Kalshi spokeswoman Dani Lever said the company still believes the rules of the Commodity Futures Trading Commission, the federal regulator, do not prohibit sports contracts, and that Kalshi will seek further review, according to a statement reported by CNN.

Two Courts Now Disagree, So the Supreme Court May Decide

Another federal appeals court, the Third Circuit, ruled the opposite way in April in a case brought by New Jersey. It treated the contracts as swaps under federal control. When two appeals courts split like this, the Supreme Court is the usual place the dispute gets settled.

Roughly 20 states are in court over whether prediction markets are unlicensed gambling, CBS News reported. A judge in Washington ordered Kalshi to stop offering its contracts there on July 21, and New York is seeking at least $36 billion in damages.

The Nevada Gaming Control Board said the decision "vindicates what we have been saying all along," and that sports betting needs state regulation, according to CBS News.

The ruling now sets the law for federal courts in the nine western states the Ninth Circuit covers, including California, Arizona and Washington. Lever's statement did not say whether Kalshi will ask the full appeals court to look again or go straight to the Supreme Court. The lower court has not yet ruled on the election contracts.

What the Ruling Means for Prediction Markets

The practical result is what Nevada demanded in the first place. Its regulators had told Kalshi it was "operating as an unlicensed sports pool," the state's term for a sportsbook. The judges agreed that gambling is an area the federal law "has not preempted," meaning it has not taken away from the states, and that "Congress has explicitly not occupied the field of gambling." In the Ninth Circuit's states, sports contracts now sit under the same state licensing as any other sports bet. An operator that wants to keep offering them there faces the same choice as a sportsbook: apply for a state license where one exists, or leave.

The court spelled out what is at stake for Kalshi: "Over 90% of Kalshi's trades in 2025, representing 95% of its revenue, were sports related." Its election contracts, which the judges called "a fraction of Kalshi's business," were sent back to the lower court rather than decided.

Other operators are already caught up in the ruling. The opinion notes that Crypto.com asked a Nevada judge for the same protection Kalshi had, using the argument the appeals court has now rejected, and was turned down. Arizona, whose criminal case against Kalshi was blocked by a federal judge in May, has its own appeal waiting in the same court. Gaming lawyer Daniel Wallach counted nine states covered by the decision and said there "may be some more state court enforcement on tap." Kalshi's appeal against Maryland, in a different appeals court, is still pending.

Kalshi's best hope may now lie with the regulator rather than the courts. Judge Lee wrote that the law "appears to give the CFTC discretion whether to ban altogether gaming contracts," and that the question can wait because a CFTC rule "bars gaming contracts. While CFTC has proposed revising that regulation, it remains in the books and controls the outcome of this appeal." That rule is what Kalshi means when it says "the CFTC is working to clarify those regulations."

Wallach expects Kalshi to skip a rehearing and go "straight to SCOTUS" after "going 0-3 in front of three Trump-appointed judges." Until the Supreme Court or the CFTC acts, operators live with two courts reading the same law in opposite ways, and with a business built on sports betting that at least nine states can now switch off.

Treat gambling as entertainment you pay for. 18+, and if it stops feeling like entertainment, help exists at BeGambleAware and GamCare.