A federal appeals court on Friday ruled Kalshi is not entitled to an injunction to block Nevada gaming regulators from overseeing its prediction markets, which allows people to buy event contracts on sporting events.
In a 3-0 decision, the Ninth U.S. Circuit Court of Appeals in San Francisco determined the Commodity Exchange Act likely did not pre-empt Nevada Gaming Commission regulations as applied to sports event contracts.
Kalshi argued that the Commodity Futures Trading Commission has exclusive regulatory authority over its sports event contracts and, therefore, Nevada’s gaming regulations did not apply.
The three-judge panel held that the U.S. District Court Judge Andrew Gordon did not abuse his discretion in dissolving the preliminary injunction because Kalshi did not show a likelihood that the CEA pre-empts state gaming regulations as applied to sports event contracts.
Nevada Gaming Control Board Chairman Mike Dreitzer said he was pleased with the court’s ruling.
“This completely vindicates what we have been saying all along,” Dreitzer said in a statement. “This is sports betting and needs to be properly regulated by the state. We will continue to vigorously enforce Nevada law to safeguard gaming in our state.”
A Kalshi spokeswoman confirmed the company would “be seeking further review.”
“The Ninth Circuit agreed with the Third Circuit on a fundamental point: federal law prevents states from regulating trading on a federally licensed exchange, like Kalshi,” said company spokeswoman Dani Lever. “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.”
The ruling was supported by the gaming industry’s trade association.
“The Ninth Circuit’s unanimous decision confirmed state and voter choice about sports betting in their communities,” Bill Miller, president and CEO of the American Gaming Association, said in a statement.
“The (AGA) applauds Nevada’s leadership for protecting and preserving the state and tribal regulated gaming framework,” Miller said. “This ruling is a significant win for consumer protections and taxpayers. It is a big loss for Kalshi and other backdoor sports gambling operations who defy state law.”
The decision creates a split with the Third U.S. Circuit Court of Appeals, which in April ruled 2-1 that New Jersey could not regulate Kalshi’s platform.
The majority opinion concluded that Kalshi’s sports-event contracts are financial “swaps” and futures contracts. Under the CEA, oversight belongs exclusively to the CFTC, blocking state gaming laws.
Judge Jane Richards dissented, arguing the event contracts are “virtually indistinguishable” from a traditional sports betting and should remain subject to state rules.
New Jersey has until September 3 to file its U.S. Supreme Court petition for review in its legal battle with Kalshi.
The ruling for Nevada increases the chances that the Supreme Court may choose to decide whether states or the CFTC should regulate some of the contracts offered by the prediction market industry.
In its decision, the three-judge panel that the CEA likely does not pre-empt Nevada’s gaming regulations as applied to Kalshi’s sports event contracts.
“As to express pre-emption, the panel concluded that, based on its plain wording of the CEA expressly pre-empts state regulation of swaps that are ‘traded or executed’ on a (Designated Contract Market),” Judge Ryan Nelson wrote. “There was no dispute that Kalshi’s event contracts were traded on a DCM.
“However, under the CEA’s definition … the sports event contracts were not ‘swaps’ because they were sports bets,” Nelson wrote.
Nelson wrote that, as amended by the Dodd-Frank Act, the CEA provides that the CFTC has exclusive jurisdiction over swaps. In a special rule provision, Dodd-Frank also gave the CFTC the power to determine that certain swaps are contrary to the public interest and therefore cannot be listed on a DCM, if the swap involves “activity that is unlawful under federal or state law.”
Those swaps determined to be unlawful involve terrorism, assassination, war, gaming and other similar activity.
“A CFTC regulation, 17 C.F.R 40.11(a), categorically prohibits swaps based on an excluded commodity that involves, relates to, or references, among other things, gaming,” Nelson wrote.
The panel also held that it had the authority to determine what is and is not a swap under the CEA’s definition and no climate under the Administrative Procedure Act was required because Nevada was not attacking the CFTC’s action or inaction.
The panel sent the case back to the district court to consider Nevada’s challenges to Kalshi’s election contracts, so they are consistent with the court’s opinion.
