The federal appeals court that sits in San Francisco delivered a decisive blow to the burgeoning prediction‑market industry on Friday. A unanimous three‑judge panel of the Ninth Circuit Court of Appeals held that states have the authority to regulate platforms like Kalshi as gambling operations.
Background and the Nevada case
The lawsuit originated in Nevada, where state regulators moved to shut down Kalshi, a leading prediction‑market exchange that allows users to wager on outcomes ranging from sports events to weather forecasts and commodity prices. Kalshi and similar sites operate under licenses from the Commodity Futures Trading Commission (CFTC), which classifies their offerings as “event contracts,” a type of derivative swap.
Since the Trump administration, the industry has been treated as a federally regulated financial exchange. However, 44 states have argued that the contracts offered on these platforms are fundamentally gambling and should fall under state gaming statutes and associated taxes.
Appeals court reasoning
Writing for the panel, the judges said, “The substance of the sports event contracts offered on Kalshi’s exchange is sports gambling, regardless of whether Kalshi calls them swaps.” They added that Kalshi’s attempts to distinguish its contracts from traditional sportsbook betting were “unpersuasive.” The decision therefore creates a binding precedent for federal judges in California, Arizona and six other states that have pursued stricter regulation.
Implications for the industry
The ruling creates a circuit split, as the Third Circuit Court of Appeals recently sided with prediction‑market operators, blocking New Jersey’s effort to apply its state gaming laws to the same companies. Both rulings are expected to be reviewed by the Supreme Court, which could ultimately resolve the regulatory dispute.
Industry observers note that the decision brings the nation one step closer to a definitive Supreme Court ruling on whether sports‑event contracts constitute gambling. Dustin Gouker, an independent journalist covering the sector, called the opinion “pretty brutal for the company” and suggested it “gets us one step closer to an almost inevitable Supreme Court case.”
State actions moving forward
With the Ninth Circuit’s decision now in place, other states are likely to follow Nevada’s lead and pursue enforcement actions against prediction‑market platforms. The ruling gives state attorneys general a clear legal foundation to treat these contracts as gambling, potentially subjecting them to state licensing requirements, taxes and consumer‑protection rules.
Kalshi, which reported billions of dollars in weekly trading volume this year—most of it from sports markets—has not responded to requests for comment. Polymarket, the second‑largest prediction site, was not a party to the Nevada case but could face similar scrutiny as states expand their regulatory reach.
What this means for consumers
For everyday users, the decision could mean fewer options for placing wagers on non‑sport events, or the need to comply with state‑specific licensing and tax obligations. It also underscores the growing tension between innovative financial products and traditional gambling frameworks.
The case remains part of a broader legal battle that will likely culminate before the Supreme Court, shaping the future of prediction markets across the United States.
Original reporting: KRDO (Colorado Springs metro) — read the source article.
