The Ninth Circuit Court of Appeals ruled unanimously that Kalshi's sports event prediction contracts do not qualify as swaps under federal commodities law, clearing the way for Nevada gaming regulators to enforce state gambling statutes against the exchange.
In a three-judge decision issued August 28, the court found that sports contracts offered by the prediction-market platform fall outside the definition of swaps protected by the Commodity Exchange Act. The ruling removes a legal shield Kalshi had invoked to argue that federal commodities regulation preempted Nevada's gambling laws. Nevada gaming authorities now have regulatory authority to apply state gambling statutes to the exchange's operations.
Kalshi has operated prediction markets on sports outcomes, elections, and economic events since 2021, arguing that its contracts qualified as CEA-regulated swaps exempt from state gambling bans. The company had secured no-action relief from the CFTC in 2023 to operate those markets. Nevada's Gaming Control Board and the state's attorney general challenged the exemption, contending that prediction contracts on sports events were unlicensed gambling under state law and should require compliance with Nevada's gaming regulations.
The Ninth Circuit's analysis hinged on statutory construction. The court examined whether Kalshi's sports contracts met the CEA definition of a swap as an agreement "to exchange or transfer consideration between parties" based on the occurrence or nonoccurrence of specified events. The panel concluded that sports prediction contracts, structured as peer-to-peer wagers, did not fit that definition because they lacked the hedging or risk-transfer function at the core of commodity swaps. That distinction matters: swaps are derivatives tools designed to manage business risk; prediction markets on sports are bilateral bets.
The decision does not touch Kalshi's other prediction markets on elections or economic data, which may rest on different legal footing. The court's opinion was narrow, addressing only sports-event contracts. Kalshi did not immediately comment on the ruling or indicate whether it plans to appeal to the Supreme Court.
The Ninth Circuit's reasoning narrows the scope of federal swap protection in a way that could affect other prediction-market platforms operating on similar business models. If other circuits adopt the same construction, exchanges offering sports prediction products would face pressure to obtain gaming licenses in states where they operate, a shift that would require compliance with state-level capital, reporting, and integrity standards.
The ruling remains subject to Supreme Court review. If Kalshi petitions for certiorari, the justices would face a question about whether Congress intended the CEA to preempt state gambling laws for prediction markets, a novel issue in the Court's docket. Nevada's enforcement authority against Kalshi now depends on whether the exchange seeks emergency stays pending any appeal.
