US appeals court rules states can regulate prediction markets

In a significant decision, a U.S. appeals court has affirmed that states possess the authority to regulate prediction markets, a ruling that could reshape the landscape for companies operating in this sector.

The Ninth Circuit Court of Appeals sided with Nevada's Gaming Control Board, upholding the state's power to oversee platforms like Kalshi. Kalshi offers "event contracts" that allow users to bet on the outcomes of various future events, which state regulators consider a form of sports betting. Consequently, Kalshi has been blocked from operating in Nevada since March.

This ruling directly challenges the stance of prediction market companies, which argue that their products should fall under federal regulation by the Commodity Futures Trading Commission (CFTC). President Donald Trump has also previously supported federal oversight and the growth potential of these markets.

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the substance of the contracts of sports events offered by Kalshi is a sports bet, regardless of whether Kalshi calls it 'swaps'.

The Ninth Circuit's decision contradicts an earlier ruling by the Third Circuit Court of Appeals, which had determined that such contracts fall under the CFTC's jurisdiction. This divergence sets the stage for a potential review by the Supreme Court. The ruling also follows a letter sent by 44 states to the CFTC, urging the federal agency to clarify that sports betting and gambling should be subject to state laws and not traded on designated contract markets.

Judges in the Ninth Circuit stated that the "substance of the sports event contracts offered by Kalshi is a sports bet, regardless of whether Kalshi calls it 'swaps'." This emphasizes the court's focus on the underlying nature of the financial products rather than their nomenclature.

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sports betting does not become something else simply because a company calls them event contracts.