US Appeals Court Backs Nevada’s Authority to Regulate Kalshi Sports Contracts

A federal appeals court has upheld Nevada’s authority to regulate sports event contracts, intensifying a fight between federal and state officials over control of prediction markets. The Commodity Futures Trading Commission sharply criticized the ruling and said the dispute could end up before the U.S. Supreme Court.

The Block reported on August 28 that the US Court of Appeals for the Ninth Circuit found Kalshi failed to show that the Commodity Exchange Act preempts Nevada gaming rules covering sports event contracts.

The appeals court also found that the lower court did not abuse its discretion in dissolving a preliminary injunction that had previously shielded Kalshi. The decision clears the way for Nevada to apply its own gaming regulations to Kalshi’s sports event contracts.

The dispute began last year, when the Nevada Gaming Control Board ordered Kalshi to stop offering election and sports event contracts. Kalshi argued that the contracts are derivatives overseen by the CFTC and therefore are not subject to state regulation. A lower court initially granted Kalshi’s request for injunctive relief, but later reversed that decision based on a ruling involving Crypto.com.

The central question is which authority has final jurisdiction over prediction markets. The CFTC has maintained that prediction market products, including sports-related contracts, are derivatives under the Commodity Exchange Act and therefore fall under exclusive federal jurisdiction. Some state governments, however, argue that sports event contracts are effectively betting products and can be regulated under existing gaming laws.

The CFTC immediately objected to the appellate decision. Spokesman Zack Fulton said the Ninth Circuit misinterpreted the relevant statutes and regulations, and that the ruling created a split among circuit courts that could require Supreme Court review.

Derivatives structured as swaps remain swaps regardless of the underlying asset, Fulton said. He added that the Commodity Exchange Act explicitly exempts only onions and movie box-office receipts, and argued that the Ninth Circuit had created a new exception not found in the law.

Kalshi said it would pursue further action. Spokesman Danni Lever said the company does not believe CFTC rules themselves prohibit sports contracts despite the ruling. Lever added that Kalshi would seek further review as the CFTC continues work to clarify the relevant regulations.

The legal clash between federal and state governments over prediction-market regulation is continuing. If other courts reach different conclusions, the dispute stands a greater chance of heading to the U.S. Supreme Court.