Appeals court sides with Nevada in prediction markets regulatory battle

A federal appeals court handed Nevada a significant victory on Friday, ruling that the state can regulate sports betting on Kalshi's prediction market platform. The 9th Circuit Court of Appeals rejected Kalshi's argument that a 1936 federal law governing commodity futures trading preempts Nevada's gambling regulations. In doing so, the court drew a clear line: what Kalshi calls sophisticated financial contracts are, in substance, sports bets—and states have the power to oversee them.

The case hinges on how to classify what Kalshi offers. The platform allows users to trade contracts tied to the outcomes of sporting events, elections, and other occurrences. Kalshi has argued these are federally regulated financial instruments called swaps, which fall under the Commodity Exchange Act and are overseen by the federal Commodity Futures Trading Commission. Nevada countered that they are gambling, plain and simple, and therefore subject to state gaming laws. Judge Ryan Nelson, writing for the 9th Circuit panel, sided with Nevada. "The substance of the sports event contracts offered on Kalshi's DCM is sports gambling, regardless of whether Kalshi calls them swaps," he wrote.

This decision matters because it reflects a broader jurisdictional battle now playing out across the country. Roughly 20 states are currently engaged in litigation over prediction markets, fighting to establish whether states or the federal government holds primary regulatory authority over these rapidly expanding platforms. Legal experts expect the dispute to eventually reach the Supreme Court. The prediction markets industry itself is growing quickly, and the question of who gets to set the rules—and how—will shape its future.

Complicating matters is a conflicting ruling from April. The 3rd U.S. Circuit Court of Appeals reached the opposite conclusion, determining that the federal CFTC has exclusive control over sports-related event contracts on Kalshi. That split decision between two major federal appeals courts virtually guarantees the issue will climb higher in the judicial system. Kalshi has signaled it intends to seek further review, arguing that federal regulations do not actually prohibit sports contracts and that the CFTC is working to clarify its own rules.

Nevada's Gaming Control Board celebrated the ruling as vindication. "This is sports betting and needs to be properly regulated by the state," the board said. Dominick Freda, legal director of Better Markets, a nonprofit focused on financial reform, called the 9th Circuit's decision a decisive win for state authority and consumer protection. "This is a decisive win for the rule of law and for every state that has built a regulatory regime to protect its residents from gambling harms," he said. Kalshi's spokesperson acknowledged the 9th Circuit's position but maintained that the company believes federal law ultimately favors its interpretation and that the CFTC's ongoing regulatory work will clarify the landscape.