A federal appeals court has ruled that Nevada can enforce its gambling laws on Kalshi’s sports event contracts, rejecting the operator’s claim that federal CFTC oversight preempts state regulation and setting up a potential Supreme Court review
Nevada regulators have secured a major legal victory in their ongoing dispute with Kalshi, the federally registered prediction market operator, after the 9th U.S. Circuit Court of Appeals ruled that the state can apply its gambling laws to Kalshi’s sports event contracts. The unanimous decision, issued on August 28, rejected Kalshi’s argument that federal Commodity Futures Trading Commission (CFTC) oversight should shield its operations from state-level gambling enforcement.
Appeals Court Sides with Nevada
The appellate panel upheld a previous Las Vegas federal court decision that lifted an injunction temporarily allowing Kalshi to offer sports event contracts in Nevada. At the heart of the case is whether Kalshi’s contracts are financial swaps regulated solely by the CFTC or sports wagers subject to state gambling law. Kalshi has maintained that its event contracts are swaps, and that federal law prevents states from imposing their own gaming rules on federally registered exchanges. However, the court found that the contracts in question share the essential characteristics of sports betting, and that Congress did not intend to strip states of their traditional authority over gambling regulation.
Regulatory Tension Between State and Federal Oversight
The ruling gives the Nevada Gaming Control Board more room to pursue enforcement actions against Kalshi, which has faced accusations of offering unlicensed sports betting in the state. Nevada Gaming Control Board Chairman Mike Dreitzer welcomed the decision, emphasizing the state’s commitment to consumer protection and regulatory oversight. The American Gaming Association also supported the outcome, arguing that state regulation of sports event contracts strengthens consumer safeguards and the integrity of gaming markets.
Conflicting Court Decisions Raise Stakes
Kalshi has stated that it will continue to seek further judicial review, insisting that federal law gives the CFTC primary jurisdiction over its marketplace. The Nevada decision stands in direct conflict with an April ruling from the 3rd U.S. Circuit Court of Appeals, which blocked New Jersey’s attempt to regulate Kalshi and found that the company’s contracts fell under the federal swaps framework. With appeals courts now split, the issue could be headed to the U.S. Supreme Court. New Jersey has until September 3 to request Supreme Court review, and the Nevada ruling increases the likelihood of a nationwide resolution.
Broader Impact on Prediction Markets
The CFTC has pushed back against state efforts to regulate prediction markets, arguing that these platforms fall under its federal jurisdiction. Meanwhile, several states—including Connecticut, Kentucky, and New Mexico—have taken enforcement actions against Kalshi, contending that sports event contracts are a form of gambling. The debate comes as prediction markets expand beyond politics and finance, with Kalshi now offering contracts on economic data, weather, and entertainment. For context, regulatory disputes over unlicensed gambling have also led to enforcement actions in other jurisdictions, as seen when Danish authorities blocked dozens of unauthorized gambling sites including Polymarket.
Understanding the distinction between a sports wager and an event contract is central to this legal battle. In the U.S., a sports wager typically involves risking money on the outcome of a sporting event, regulated by state gaming authorities. An event contract, as offered by prediction markets like Kalshi, is structured as a financial instrument that pays out based on the occurrence of a specific event, and is regulated at the federal level by the CFTC. The current legal uncertainty means that the regulatory status of these products may continue to vary by state until a definitive nationwide ruling is issued.
