U.S. Appeals Court Rules States May Regulate Prediction Markets as Gambling

The Ninth Circuit Court of Appeals ruled unanimously that states have the authority to regulate prediction platforms such as Kalshi and Polymarket as gambling. The decision follows a legal battle initiated by Nevada officials and an association of casinos. The court found that the essence of event contracts offered by Kalshi is that of sports betting, regardless of whether the company labels them as swaps. The panel also noted that Kalshi's attempts to differentiate its products from gambling were not convincing, particularly since the company had used gambling terminology in its own marketing.

Prediction markets allow users to wager on a variety of outcomes, including sports, politics, culture, and weather. These platforms have grown into a multibillion dollar industry by structuring themselves as financial markets for trading rather than casinos. This structure allows them to obtain licenses from a federal commodity regulator to offer event contracts, which enables them to bypass state gaming boards and avoid gambling taxes. State officials and casino operators argue that this setup allows companies to avoid paying taxes that fund public services like schools and highways.

The ruling creates a legal split between federal courts. While the Ninth Circuit sided with the states, the Third Circuit Court of Appeals previously ruled in favor of prediction sites, blocking New Jersey from applying state gambling laws to these platforms. Legal experts suggest this conflict may lead to a final review by the U.S. Supreme Court.

Reactions to the ruling highlight a divide in how the conflict is perceived. A center left source frames the situation as an all out war between the established casino industry and disruptive startups, noting that the gaming industry has spent over 3.3 million dollars on federal lobbying this year. Conversely, a center right source focuses on the legal specifics of the court's decision and the resulting jurisdictional conflict between federal and state oversight.