Court sides with Nevada in prediction market regulation dispute

A federal appeals court has rejected Kalshi's attempt to prevent Nevada from regulating speculation on sporting events on its platform. The ruling delivers a significant victory to states in the ongoing battle over governmental authority to oversee the rapidly expanding prediction markets business.

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

The 9th Circuit Court of Appeals stated that Kalshi failed to demonstrate that the 1936 Commodity Exchange Act, which governs commodity futures trading, preempts Nevada's gambling laws. The court concluded that the contracts offered on Kalshi's designated contract market are essentially sports bets, regardless of how Kalshi labels them.

This decision is a key development in the turf war between state and federal governments concerning regulatory oversight of prediction markets. These platforms allow users to wager on outcomes ranging from sports events to elections. Approximately 20 states are involved in litigation related to prediction markets, and experts anticipate the dispute could eventually reach the Supreme Court.

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The 9th Circuit agreed with the 3rd Circuit on a fundamental point: Federal law prevents states from regulating trading on a federally licensed exchange, like Kalshi.

While the 9th Circuit's decision aligns with a previous ruling by the 3rd U.S. Circuit Court of Appeals, which also found federal agencies have exclusive control over such contracts, a separate April decision reached a different conclusion. Kalshi spokesperson Dani Lever indicated the company still believes federal regulations do not prohibit sports contracts and that the Commodity Futures Trading Commission (CFTC) is working to clarify these rules. Kalshi plans to seek further review.

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This is sports betting and needs to be properly regulated by the state.

The Nevada Gaming Control Board hailed the ruling, stating it "vindicates what we have been saying all along. This is sports betting and needs to be properly regulated by the state." Legal experts, like Dominick Freda of Better Markets, described the decision as a "decisive win for the rule of law and for every state that has built a regulatory regime to protect its residents from gambling harms."

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The 9th Circuit's decision is a decisive win for the rule of law and for every state that has built a regulatory regime to protect its residents from gambling harms.