A US federal appeals court has sided with Nevada in its dispute with Kalshi, ruling that federal commodities law does not prevent the state from applying its gambling regulations to sports-related prediction contracts.
The unanimous decision from a three-judge panel of the US Court of Appeals for the Ninth Circuit, issued on August 28, upheld a lower court ruling that dissolved an injunction protecting Kalshi from enforcement action by Nevada gaming regulators. The decision allows the state to continue treating Kalshi’s sports event contracts as gambling products that require appropriate state licensing.
Kalshi operates as a designated contract market registered with the Commodity Futures Trading Commission. The company has argued that contracts traded on its federally regulated exchange fall under the Commodity Exchange Act and therefore sit within the CFTC’s exclusive jurisdiction.
Nevada regulators have taken the opposite position, maintaining that contracts tied to sporting outcomes amount to sports wagering when offered to customers in the state.
Court Rejects Broad Federal Preemption Argument
Circuit Judge Ryan Nelson, writing for the Ninth Circuit panel, concluded that Kalshi had not demonstrated that the Commodity Exchange Act was likely to preempt Nevada gambling laws as they apply to sports contracts.
The court examined Kalshi’s argument that its products qualify as swaps and therefore fall within provisions giving the CFTC exclusive authority over certain transactions conducted on designated contract markets. The panel determined that reading the definition that broadly was inconsistent with the wider structure and history of federal commodities legislation.
The decision also highlighted federal rules governing event contracts linked to activities including gaming. Existing law gives the CFTC authority to scrutinise contracts involving areas such as gaming, terrorism, assassination, war and activities prohibited under state or federal law.
The CFTC itself is currently reassessing how those provisions should apply to the rapidly expanding prediction market sector. In June, the regulator proposed a framework for reviewing event contracts involving those categories, including sporting events, on a contract-by-contract basis.
The appeals court nevertheless stopped short of deciding all aspects of Kalshi’s Nevada operations. It sent questions surrounding Kalshi’s election-related contracts back to the district court for further consideration.
Nevada Ruling Conflicts With New Jersey Decision
The Ninth Circuit decision creates a significant split between federal appeals courts over whether states can regulate sports prediction contracts.
In April, the Third Circuit reached the opposite conclusion in Kalshi’s dispute with New Jersey. That court upheld an injunction preventing New Jersey regulators from enforcing state gambling laws against Kalshi’s sports markets, finding that the company had shown a reasonable likelihood that federal commodities law preempted the state rules.
The conflicting decisions substantially increase the possibility that the broader jurisdictional dispute could eventually reach the US Supreme Court.
Kalshi has indicated that it intends to seek further review of the Nevada decision. The company continues to maintain that its sports products are federally regulated event contracts rather than conventional sportsbook wagers.
Nevada Enforcement Battle Continues
The dispute began after the Nevada Gaming Control Board issued a cease-and-desist notice accusing Kalshi of operating an unlicensed sports betting platform.
Separate state-court proceedings have since required Kalshi to prevent Nevada customers from accessing contracts involving sports, elections and entertainment. The company agreed to introduce third-party geolocation technology, while Nevada regulators later sought penalties of $120,000 per day over allegations that the restrictions had not been implemented successfully.
The Ninth Circuit ruling may also carry consequences beyond Nevada because its jurisdiction covers several western states, including Arizona, California and Washington.
Arizona officials are already examining the decision in connection with their own dispute with Kalshi. The state has sought to apply its gambling laws to prediction markets, while a federal district court previously restricted Arizona from pursuing enforcement against the company.
The Nevada decision therefore adds another major ruling to an increasingly fragmented legal landscape, with federal courts now sharply divided over where CFTC oversight ends and state gambling authority begins.