Kalshi has suffered one of its most significant legal setbacks yet after a federal appeals court rejected the prediction market operator’s attempt to prevent Nevada from applying state gambling laws to its sports contracts, creating a sharp conflict between two federal appellate courts over who gets to regulate the rapidly expanding industry.
A unanimous three-judge panel of the U.S. Court of Appeals for the Ninth Circuit ruled Friday that Kalshi had not shown that the federal Commodity Exchange Act, or CEA, preempts Nevada gaming regulations when they are applied to its sports event contracts.
The ruling affirmed a lower court’s decision dissolving a preliminary injunction that had previously protected Kalshi from Nevada enforcement. The Ninth Circuit remanded a separate dispute involving election contracts for further consideration by the district court.
At the center of the dispute is Kalshi’s argument that it operates a federally regulated designated contract market, or DCM, under Commodity Futures Trading Commission oversight and therefore should not have to comply with individual state gambling regimes.
Nevada sees the same products very differently.
The Nevada Gaming Control Board initially issued Kalshi a cease-and-desist order in March 2025, arguing that contracts allowing customers to take positions on sporting outcomes amounted to wagering requiring a Nevada gaming license. The regulator’s enforcement campaign escalated through 2026, and Kalshi stopped offering its sports prediction market business in Nevada in July.
The Ninth Circuit has now largely endorsed Nevada’s legal theory.
The CEA gives the CFTC exclusive jurisdiction over certain derivatives, including swaps traded on federally regulated markets. But the appeals court concluded that Kalshi’s sports event contracts were not swaps within the relevant statutory definition because they were, in substance, sports bets.
That distinction proved decisive.
The court said federal law expressly preempts state regulation where qualifying swaps are traded on a DCM, but found that protection did not extend to Kalshi’s sports contracts. It also rejected Kalshi’s arguments that Nevada regulation created an impossible conflict with federal law or intruded on a field reserved exclusively to the CFTC.
The ruling also focused on an awkward provision for the prediction market industry: CFTC Regulation 40.11. The Ninth Circuit noted that the current rule prohibits certain contracts involving or referencing gaming and found that Kalshi’s self-certification of sports contracts did not remove that problem.
Nevada Gaming Control Board Chairman Mike Dreitzer welcomed the result, saying the decision supported the state’s longstanding view that sports prediction contracts amount to sports betting and therefore fall within state gaming oversight.
Kalshi, however, is not backing away.
Spokesperson Dani Lever said the company believes the CFTC’s regulations as currently written do not prohibit sports contracts and confirmed that Kalshi intends to seek further review. She also emphasized one aspect of the Ninth Circuit decision favorable to the company: the court accepted that federal law can prevent states from regulating products that genuinely fall inside the CFTC’s exclusive derivatives jurisdiction.
That leaves the crucial question of whether sports contracts qualify for that protection.
Third Circuit Ruling Creates Direct Tension
The decision is especially important because another federal appeals court reached essentially the opposite result just months ago.
On April 6, the Third Circuit affirmed an injunction preventing New Jersey regulators from enforcing state gambling laws against Kalshi’s sports event contracts. That court found that Kalshi had demonstrated a reasonable likelihood that the CEA preempts New Jersey law and treated the sports contracts as swaps falling within the CFTC’s exclusive jurisdiction.
The Ninth Circuit expressly acknowledged that decision but rejected its approach.
That leaves Kalshi in the unusual position of having one federal appellate court effectively say that its sports products belong inside the federal derivatives framework while another says those same products are sports bets that states can regulate.
CFTC spokesperson Zach Fulton responded by arguing that the Ninth Circuit misread the statute and said the conflicting decisions now present a question suitable for Supreme Court resolution.
The CFTC has become an active participant in the wider fight.
Chairman Michael Selig has repeatedly argued that Congress gave the agency exclusive authority over federally regulated prediction markets. The regulator has filed lawsuits against states including Arizona, Connecticut, Illinois, New York, Wisconsin and New Mexico as those jurisdictions attempted to enforce gambling laws against CFTC-registered exchanges.
Connecticut added another front this week, filing its own lawsuit against Kalshi on Aug. 26 and seeking an injunction against what state officials described as illegal, unlicensed sports wagering.
At the same time, the CFTC is rewriting the regulatory framework that helped create the dispute. In June, it proposed amendments to Regulation 40.11 that would establish a structured process for deciding when event contracts involving gaming, war, terrorism and other enumerated activities are contrary to the public interest.
That means the courts are interpreting one regulatory framework while the federal regulator responsible for it is actively trying to change it.
Analysis: Kalshi’s National Model Just Became Much Harder to Defend
The immediate legal loss is important for Kalshi, but the larger problem is what happens if the Ninth Circuit’s reasoning spreads.
Kalshi’s sports strategy depends heavily on one concept: a federally regulated exchange should be able to offer the same contract nationwide without obtaining gambling licenses state by state.
That is one of the model’s biggest commercial advantages over DraftKings, FanDuel and conventional sportsbooks. State-regulated betting operators must navigate licensing, taxation, product restrictions and local compliance requirements jurisdiction by jurisdiction.
Prediction markets have argued that the CEA gives them a single federal lane instead.
The Ninth Circuit has now shown how fragile that advantage becomes if courts classify the underlying contract before deciding who regulates the exchange.
Under Kalshi’s theory, the fact that a product trades on a CFTC-regulated DCM is central. Under the Ninth Circuit’s reasoning, the first question is more basic: what is the customer actually betting on?
If the answer is whether the Yankees win, whether an NFL team covers a result or who wins a basketball game, calling the instrument an “event contract” does not necessarily transform it into the type of derivative Congress intended to remove from state gambling oversight.
That logic represents a serious threat to nationwide sports prediction markets.
The Third Circuit decision prevents the legal picture from being settled. Kalshi can still point to binding appellate authority supporting its position in another part of the country, and that conflict gives it a strong argument for further review.
But fragmentation itself is damaging.
A platform built around nationwide liquidity becomes harder to operate efficiently if contracts are legal in New Jersey under one appellate interpretation but subject to gambling regulation in Nevada under another. Add lawsuits in Connecticut, Arizona, New York and elsewhere and the supposed simplicity of a single federal market begins to disappear.
There is also a larger policy fight underneath the statutory language.
States have spent years building tightly controlled sports-betting regimes involving licensing fees, responsible-gambling requirements, age controls, taxes and restrictions on particular types of wagers. They see prediction markets offering economically similar products outside that framework and understandably ask why one company should bypass rules that apply to every sportsbook.
The CFTC sees the opposite danger. Allowing dozens of states to decide which contracts federally regulated exchanges may list could fragment a national derivatives market Congress deliberately centralized.
Both concerns are real, which is why this dispute has outgrown Kalshi.
Robinhood, Crypto.com, Coinbase-linked businesses and other firms are moving deeper into event contracts. Meanwhile, Kalshi’s own scale has expanded rapidly: its platform reportedly generated around $27 billion of trading volume during the 2026 World Cup and attracted roughly 3 million users during the tournament.
This is no longer an experimental corner of derivatives regulation.
The Ninth Circuit decision therefore creates an uncomfortable situation that neither the CFTC’s rulemaking nor another district-court injunction may completely solve. Two federal appellate courts now disagree on the legal character of essentially the same product.
That is exactly the kind of conflict that can eventually draw the Supreme Court.
Until then, prediction markets face the possibility of something their federal model was specifically designed to avoid: a state-by-state regulatory map determining where Americans can and cannot trade the same event contract.