Kalshi Sports Bets Ruled Not Swaps by 9th Circuit

Kalshi sports bets suffer major appeals court defeat

Kalshi sports bets just hit a wall in the Ninth Circuit. A unanimous three-judge panel ruled that Nevada can enforce its gambling laws against the prediction market, rejecting the company's argument that its products are federally regulated swaps, and it's a stinging loss for the firm's whole business model. The decision lands as a direct rebuke to both Kalshi and the Trump administration's push to let prediction markets operate outside state oversight. So they can't dodge that wall.

Judge Ryan Nelson wrote the majority opinion, joined by Judge Bridget Bade. Judge Kenneth Lee concurred separately. The ruling affirms a lower court order that dissolved an injunction protecting Kalshi from Nevada enforcement.

Kalshi markets itself as "the first app for legal sports betting in all 50 states," Nelson noted. That advertising caught the Nevada Gaming Control Board's eye. So the board fired off a cease-and-desist letter, claiming the platform violated state statutes and demanding it halt operations immediately. Kalshi didn't back down. Instead, it sought injunctive relief, arguing it operates as a designated contract market under the Commodity Exchange Act, not as a gambling outfit, and that state regulators simply can't override federal oversight here. That's the whole fight.

The company insisted the CFTC holds exclusive regulatory authority over its sports event contracts. Nevada disagreed. The Ninth Circuit sided with Nevada.

Sports bets aren't swaps, judges rule

The core legal fight hinges on whether a sports wager on a prediction market qualifies as a "swap" under federal law.

The Ninth Circuit wasn't buying it. Nelson quoted Shakespeare to make the point: "that which we call a rose by any other name would smell as sweet." Placing sports bets, even when called something else, is still gambling.

The statutory definition of a swap covers agreements "dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence." Kalshi argued that language sweeps in sports outcomes. The judges disagreed.

The broadest possible reading might cover sports event contracts, the ruling acknowledged. It can't hold up, though. That interpretation conflicts with the larger statutory scheme and has no limiting principle, so it falls apart when you push on it. Congress addressed gambling in other statutes, and the Dodd-Frank Act didn't repeal those laws when it gave the CFTC swap authority. And that's the problem. But the court saw it clearly.

Lee's concurrence drove the point home with a baseball analogy. "Few people would describe, say, the New York Mets' latest loss of a game as an 'event,'" he wrote. A single game in a 162-game season doesn't carry the kind of financial consequence one expects in a swap contract, even if some fans guzzle more beer to drown their sorrows.

Circuit split sets up Supreme Court fight

This decision directly conflicts with a Third Circuit ruling against New Jersey. That court found sports wagers on prediction markets are swaps. So the split between circuits dramatically increases the odds the Supreme Court steps in, and it's hard to overstate how much weight that carries for every future case involving these markets, since a national standard now hangs in the balance. But that's the reality.

The CFTC has been suing states that try to regulate or ban prediction markets, claiming exclusive jurisdiction. The agency's position just took a serious hit.

The Ninth Circuit also criticized the Third Circuit's reasoning, saying it "essentially disregarded" the regulatory prohibition on listing gaming-related transactions. The CFTC hasn't yet acted to review or prohibit sports-related contracts, the Third Circuit had noted. The Ninth Circuit found that argument unpersuasive.

The current regulatory landscape adds another layer. CFTC regulations prohibit gaming contracts on prediction markets. Designated contract markets can self-certify new contracts and start offering them the next business day, but that doesn't make them legal.

"Kalshi's self-certification and listing of these contracts is unlawful," the ruling stated.

Trump administration's friendly stance

The political backdrop matters here. The Trump administration has shown consistent favor toward prediction markets. Both Kalshi and Polymarket count Donald Trump Jr. as an advisor. Polymarket received investment from a Trump Jr.-backed venture capital firm.

A recent CFTC proposal could change the rules entirely. According to a July 27 letter from 44 state attorneys general, the proposal defines gaming in a way that would "permit sports betting and other gambling contracts on DCMs."

The Ninth Circuit acknowledged that federal rules will shift if the CFTC adopts that proposal. But for now, "the existing regulation controls."

"Because we disagree with Kalshi's overly broad reading of the CEA, and because CFTC regulations currently prohibit offering contracts related to gaming on prediction markets, we affirm the district court's order dissolving the injunction as to sports event contracts."

Election contracts remain unresolved

The appeals court didn't settle everything. While it agreed that sports event contracts aren't swaps, it sent the question of election contracts back to the lower court.

Kalshi's election contracts are illegal under Nevada law but represent only "a fraction of Kalshi's business," the court noted. The district court never analyzed whether those contracts fit the CEA's swap definition. That analysis must now happen.

Lee's concurrence suggests that door isn't fully shut on gaming contracts. But he wrote that US law "does not seem to categorically bar all gaming contracts," which leaves room for interpretation. Some unique sports events might qualify as swap trades if they meet the statutory requirements. That's the key.

But that's a question for another day. "I do not think we need to resolve this thorny statutory interpretation question right now because 17 C.F.R. § 40.11 bars gaming contracts," Lee wrote. The CFTC has proposed revising that regulation, but it remains on the books and controls the outcome.

Nevada Governor Joe Lombardo welcomed the decision. "Prediction markets offering sports-event contracts constitute gambling and must comply with Nevada's gaming laws and regulatory framework," he said.

The Nevada Gaming Control Board said the Ninth Circuit "emphatically reject[ed] the view that the federal Commodity Exchange Act preempts application of Nevada's gaming laws to sports-event contracts offered by Kalshi, Crypto.com, and Robinhood.

For Kalshi sports bets, the immediate future looks grim. It's a stark picture, one defined by regulatory pressure and legal uncertainty that offers little room for optimism in the near term. The company faces state enforcement in Nevada and potentially elsewhere, with regulators clearly signaling they won't stand idly by. And that's just the start. The Supreme Court could still intervene, but that's a long shot that requires certiorari and a favorable ruling, a procedural gauntlet that rarely clears and even more rarely lands in the petitioner's favor. So don't hold your breath.

For now, the Ninth Circuit's message is clear: calling a bet a swap doesn't make it one.