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UKStates Can Regulate Prediction Markets as Gambling, Court Rules
Key Highlights
- A federal appeals court ruled that states can regulate prediction markets under gambling laws.
- The decision is a major loss for Kalshi, which says its markets are federally regulated financial products.
- Another federal appeals court reached a different decision, making a Supreme Court case more likely.
Sports-related event contracts are not “swaps,” according to a federal appeals court. The Supreme Court, however, will likely have the final say whether states can regulate prediction markets.
Court Sides With State Regulators
On August 28, the Ninth Circuit Court of Appeals rejected Kalshi’s request for injunctive relief against the Nevada Gaming Control Board (NGCB). The ruling, at least for now, confirms sports contracts are a form of sports gambling, even if they function differently than traditional wagers.
The NGCB had previously tried to stop Kalshi from operating in Nevada and sought harsh fines over an alleged missed compliance deadline in a geofencing dispute.
Prediction markets let people put money on the results of events such as sports, award shows, weather, gold prices, and music releases. They can “buy” and “sell” those contracts as they change in price, similar to other financial derivatives. Kalshi and similar companies are regulated by the federal Commodity Futures Trading Commission (CFTC).
However, 44 states have argued that these platforms should also follow state gambling laws and pay gaming taxes. The court agreed that calling the products “financial swaps” does not change how they function.
Kalshi Says It Will Appeal
Kalshi said it disagrees with the ruling and plans to keep fighting the case. The company says current federal rules do not ban sports contracts and that it is working to make those rules clearer.
“A derivative contract structured as a swap is a swap regardless of the underlying subject matter – the only exceptions in statute are onions and movie box office receipts,” a CFTC spokesperson said in a statement to CNBC. “The Ninth Circuit erred today when it invented a new and atextual exception to the [Commodity Exchange Act].”
The ruling marked another legal setback for Kalshi. On August 4, U.S. District Judge Robert Shelby sided with Utah lawmakers, confirming the state could enforce its gambling laws against the US-based prediction market.
State regulators in Nevada, meanwhile, have also taken action against prediction markets connected to Crypto.com and Robinhood.
Supreme Court Case Could Be Next
The ruling creates a disagreement between two federal appeals courts. Earlier in 2026, the Third Circuit Court of Appeals sided with prediction market companies and blocked New Jersey from applying its gambling laws to Kalshi.
Because the two courts reached different decisions, the Supreme Court may eventually need to settle the issue. New Jersey lawyers have already said they plan to ask the Supreme Court to review their case.
For now, the Ninth Circuit ruling could make it easier for states in that court’s region to take action against Kalshi.
