Court rules Kalshi sports bets aren't "swaps," just gambling with a different name
The 9th Circuit Court of Appeals unanimously ruled that Nevada can enforce its state gambling laws against Kalshi's sports-event contracts, rejecting Kalshi's argument that the Commodity Exchange Act (CEA) preempts state regulation The court held that sports bets, even when labeled as "swaps," constitute gambling and do not qualify for exclusive CFTC jurisdiction under the CEA's swap definition A circuit split has emerged between the 9th Circuit (against Kalshi) and the 3rd Circuit (in favor of
Analysis
TL;DR
- The 9th Circuit Court of Appeals unanimously ruled that Nevada can enforce its state gambling laws against Kalshi's sports-event contracts, rejecting Kalshi's argument that the Commodity Exchange Act (CEA) preempts state regulation
- The court held that sports bets, even when labeled as "swaps," constitute gambling and do not qualify for exclusive CFTC jurisdiction under the CEA's swap definition
- A circuit split has emerged between the 9th Circuit (against Kalshi) and the 3rd Circuit (in favor of Kalshi regarding New Jersey), significantly increasing the likelihood of Supreme Court review
- The ruling noted that CFTC regulations currently prohibit gaming contracts on prediction markets, and Kalshi's self-certification process for listing sports contracts was deemed unlawful
- Despite political ties between prediction market platforms (Kalshi, Polymarket) and the Trump administration, the court emphasized that existing federal regulations control until the CFTC formally changes its rules
Why It Matters
This ruling has direct implications for the prediction market industry, which has been expanding rapidly and positioning itself as an alternative to traditional sports betting. The circuit split creates regulatory uncertainty that could either consolidate state-level gambling enforcement or push the issue to the Supreme Court for a definitive national answer. For AI and technology companies operating in the prediction market space, the decision underscores the importance of navigating both federal commodity regulations and state-level gambling laws simultaneously.
Technical Details
- Legal framework: The case centers on whether the Commodity Exchange Act's definition of a "swap" — any agreement dependent on "the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence" — encompasses sports betting contracts
- Circuit split: The 3rd Circuit previously ruled that sports wagers on prediction markets qualify as swaps under the CEA, granting the CFTC exclusive jurisdiction; the 9th Circuit explicitly rejected this interpretation, creating a direct conflict
- CFTC self-certification process: Designated contract markets (DCMs) can self-certify new contracts to the CFTC and begin offering them the next business day, with the CFTC retaining the ability to review and disallow contracts retroactively — the 9th Circuit found Kalshi abused this mechanism
- CFTC regulatory prohibition: Section 40.11 of CFTC regulations explicitly prohibits listing gaming-related transactions on prediction markets, which the 9th Circuit said Kalshi violated regardless of the CEA preemption argument
- Pending CFTC proposal: A proposed CFTC rule change could redefine gaming in a way that permits sports betting on DCMs, but the court held that existing regulations control in the interim
Industry Insight
- Prediction market platforms should prepare for a prolonged regulatory battle, as the circuit split makes Supreme Court involvement nearly inevitable — companies operating nationally will need compliance strategies that account for divergent federal and state requirements until a final resolution is reached
- The political dimension cannot be ignored: with Trump Jr. advising both Kalshi and Polymarket and venture capital ties to the Trump family, industry players should anticipate potential regulatory shifts under the current administration, but should not rely on political connections to override established state gambling enforcement
- The ruling sends a clear signal to other prediction market operators (Crypto.com, Robinhood) that the "call it a swap, not a bet" legal strategy has limited viability in the 9th Circuit, and companies should invest in robust state-by-state compliance frameworks rather than relying on federal preemption arguments
Disclaimer: The above content is generated by AI and is for reference only.