Federal appeals court backs Nevada in prediction markets dispute with Kalshi
The Ninth Circuit Court of Appeals rules that federal Commodity Exchange Act doesn’t prevent states from regulating sports contracts, a decision that could set up Supreme Court showdown
Kalshi has suffered a major legal blow after a federal appeals court sided unanimously with Nevada in the battle over who regulates prediction markets, a ruling that could have wide-reaching implications for the rapidly growing industry.
The Ninth Circuit Court of Appeals ruled on Friday, 28 August, that the prediction markets platform had not demonstrated that federal commodities law overrides Nevada’s sports betting regulations.
In April, the Third Circuit Court of Appeals ruled that New Jersey could not block prediction markets in the state, so the 3-0 decision on Friday by the three-judge panel increases the likelihood of a showdown with the US Supreme Court for a final say on the legality of prediction markets.
Kalshi, which is the US market leader valued at $22bn (£16.3bn), has consistently argued that event contracts are ‘swaps’ under the Commodity Exchange Act and that federal law pre-empts individual state regulations governing state-level sports betting.
However, Circuit Judge Ryan Nelson said Kalshi’s sports event contracts were a “quintessential form of gambling” that the derivatives regulator – the Commodity Futures Trading Commission (CFTC) – does not regulate.
The opinion also pointed to the New York-based platform advertising itself as “the first app for legal sports betting” in all 50 US states.
“The substance of the sports event contracts offered on Kalshi’s DCM [designated contract market] is sports gambling, regardless of whether Kalshi calls them swaps,” Nelson wrote.
“Kalshi’s attempts to distinguish its sports event contracts from sportsbooks betting are unpersuasive.”
The opinion also said that more than 90% of Kalshi’s 2025 trades and 95% of its revenue were connected to sports-related contracts.
Nevada Gaming Control Board chair Mike Dreitzer said in a statement: “We are pleased with the Ninth Circuit’s ruling today in favour of Nevada.
“This completely vindicates what we have been saying all along. This is sports betting and needs to be properly regulated by the state.”
Kalshi hit back at the ruling, with a spokesperson saying: “Despite the Ninth Circuit’s opinion, we still believe the CFTC regulations as written do not prohibit sports contracts, and in any event, the CFTC is working to clarify those regulations. We will be seeking further review.”
The decision by the San Francisco-based court is the most significant courtroom victory for states trying to regulate prediction markets. A total of 44 states insists prediction markets are gambling and, therefore, should be licensed and pay state gaming taxes.
At the end of August, Connecticut sued Kalshi and filed for a court injunction to block the platform from offering sports event contracts.
Earlier in the month, New York launched a $36m lawsuit against Kalshi, accusing the company of running an illegal gambling operation and not having a licence from the New York State Gaming Commission.
Nelson and the other two judges of the Ninth Circuit Court of Appeals, Kenneth Kiyul Lee and Bridget Bade, were appointed by President Donald Trump.
Trump is a supporter of prediction markets and the CFTC overseeing these platforms, while his eldest son, Donald Trump Jr, is an adviser to Kalshi and Polymarket.
Trump Jr’s venture fund, 1789 Capital, is reportedly investing around $300m of a $1bn funding round in Polymarket that will value the privately held business at $21bn.
In April, the decentralised, blockchain-powered platform founded by Shayne Coplan closed a financing round at a $15bn valuation.
Polymarket was ejected from the US in 2022 and fined $1.4m for operating an unregistered exchange. However, the platform returned to the market in late 2025 after acquiring CFTC-licensed exchange QCEX for $112m.