A federal appeals court issued a unanimous ruling on Friday, confirming that Nevada can enforce its gambling laws against Kalshi, a significant setback for the prediction market operator that increases the likelihood of a Supreme Court review by the beginning of the 2027 NFL season.
In a 3-0 decision, the US Court of Appeals for the Ninth Circuit determined that contracts on sports events do not meet the criteria of federally regulated swaps under the Commodity Exchange Act (CEA). This ruling invalidated an injunction that had previously limited Nevada gaming regulators' ability to regulate these financial products.
The three-judge panel, in a 50-page opinion, concluded that the CEA does not preempt Nevada's gaming regulations concerning Kalshi's sports event contracts. US Circuit Judge Ryan Nelson noted that the nature of these contracts should be classified as "sports gambling," regardless of Kalshi's designation of them as "swaps." Nelson compared a bet on the Las Vegas Raiders to win by 7.5 points at Caesars Sportsbook with a contract on the Raiders at Kalshi, stating there was no meaningful distinction.
Quoting William Shakespeare's "Romeo and Juliet," Nelson emphasized that calling an event contract by a different name would not alter its essence: "To call a rose by any other name would smell as sweet."
Nelson described Kalshi's claims that its events were not sports bets as disingenuous. Mike Dreitzer, Chair of the Nevada Gaming Control Board, commented that the ruling "completely vindicates what we have been saying all along: This is sports betting and needs to be properly regulated by the state."
The American Gaming Association (AGA), a leading critic of federal prediction market regulations, viewed the Ninth Circuit ruling as a significant win for consumer protections. AGA President Bill Miller stated that Nevada's decision helps to protect the state- and tribal-regulated gaming framework, citing considerable tax revenue losses exceeding $1 billion for states due to the growth of prediction markets.
Conversely, the US Commodity Futures Trading Commission (CFTC) has maintained that it holds exclusive jurisdiction over event contracts' regulation. CFTC Chair Michael Selig, appearing on CNBC in March, accused states of attempting to undermine federal law regarding prediction markets. Following New York's $36 billion lawsuit against Kalshi, Selig reaffirmed the CFTC's commitment to defending its regulatory authority.
The Ninth Circuit's ruling differs from an earlier decision by the US Court of Appeals for the Third Circuit in the KalshiEX LLC vs Flaherty case, which found in a 2-1 decision on April 6 that the CEA preempts New Jersey from enforcing state gambling laws against Kalshi's sports contracts. Such circuit splits often prompt the Supreme Court to consider cases that hold national significance.
Interest in the Supreme Court's potential review is reflected in trading on platforms like Polymarket, where users can speculate on whether the high court will take up the case by December 31, 2023. Trading volume for this contract surpassed $976,000 by Friday evening.
While the "yes" option fluctuated around 30% this year, it surged to 64% on Friday, as New Jersey is set to decide by September 3 whether to petition the Supreme Court for certiorari.
Additionally, Donald Trump Jr. recently commented on prediction markets, suggesting that states were influenced by the gambling lobby during a March event in New Orleans. He claimed that federal oversight was adequate and addressed the ongoing legal controversies around prediction markets. Trump Jr. has been associated with Kalshi, acquiring over $300,000 in shares, and also holds a stake in Polymarket through 1789 Capital.
As the 2026-27 NCAA football season commenced with various games, prediction market activity reached $20 million to $30 million in trading volume on college football prediction markets, which marks a 22-fold increase from the previous year. Kalshi alone reported over $17.5 million in national championship futures trading, with Ohio State and Notre Dame emerging as co-favorites.
DraftKings has also intensified its marketing efforts as the season begins, launching new ads in major states and introducing offerings that mimic traditional sportsbook parlays. Recent data revealed a notable spike in combo notional volume to $10 million in a single day, indicating their growing influence in the market.
