Federal Appeals Court Rules States Can Regulate Prediction Markets as Gambling

A federal appeals court ruled Friday that states have the authority to regulate prediction markets as gambling. The Ninth Circuit Court of Appeals issued a 3-0 ruling, consisting of three Trump appointed judges, which prevents the prediction site Kalshi from blocking oversight by Nevada regulators. The court stated that Kalshi's sports event contracts are sports gambling regardless of whether the company calls them swaps, and called it disingenuous for the company to deny they were sports betting after using such phrasing in marketing materials.

Kalshi has operated as a federally regulated financial exchange with licenses from the Commodity Futures Trading Commission to offer event contracts. However, 44 states have argued that these platforms should be subject to state gaming laws and taxes. Nevada Governor Joe Lombardo and the Nevada Gaming Control Board stated that the ruling vindicates their position and helps safeguard the integrity of the gaming industry. Kalshi condemned the ruling and announced it would seek further review, maintaining that CFTC regulations do not prohibit sports contracts.

This decision creates a circuit split because the Third Circuit Court of Appeals previously sided with prediction sites in a case involving New Jersey. Legal experts suggest this conflict makes a Supreme Court review likely. The Ninth Circuit ruling now serves as binding legal precedent for federal judges in California, Arizona, and six other states. While Kalshi was the primary target of this lawsuit, the ruling impacts the broader industry, which includes other sites like Polymarket.