Federal Appeals Court Rules Against Prediction Markets in Nevada Gambling Case

<p>A federal appeals court ruled on August 28, 2026, that Nevada can enforce its gambling laws against sports-related prediction contracts, rejecting challenges from Kalshi and Crypto.com. This decision impacts the rapidly growing prediction market industry.</p><p>The Ninth Circuit Court of Appeals dismissed Kalshi's argument that its sports contracts are federally regulated financial instruments under the Commodity Exchange Act. The court also rejected an appeal from Crypto.com.</p><p>“The sports event contracts were not ‘swaps’ because they were sports bets,” the unanimous three-judge panel stated.</p><p>This ruling contradicts a previous Third Circuit decision that determined New Jersey could not apply its gambling laws to Kalshi, raising the possibility that the Supreme Court may eventually address whether sports-event contracts fall under federal jurisdiction or state gambling laws.</p><p>The court rejected Kalshi’s claim that the contracts should be classified as swaps, which are derivatives regulated by the Commodity Futures Trading Commission (CFTC), simply due to their financial instrument structure.</p><p>“The CFTC is not a national gambling regulator,” Judge Ryan Nelson wrote for the panel. “No one suggested it was until over a decade after the law was passed.”</p><p>The CFTC indicated to CNBC that it holds exclusive authority over prediction markets operating under the Commodity Exchange Act and has previously taken legal action against states attempting to regulate these platforms under state gambling laws.</p><p>State regulators have argued that sports-related prediction contracts are effectively sports wagers and should be governed by the same laws and taxes as traditional gambling. </p><p>“The substance of the sports event contracts offered on Kalshi’s exchange is sports gambling, regardless of whether Kalshi calls them swaps,” the Ninth Circuit stated.</p><p>The court noted Kalshi’s marketing, which described the company as “the first app for legal sports betting” in all 50 states.</p><p>The Ninth Circuit’s decision upheld a lower-court ruling in Nevada that permitted state gaming authorities to regulate Kalshi’s sports contracts.</p><p>“This is sports betting and needs to be properly regulated by the state,” Nevada Gaming Control Board Chairman Mike Dreitzer stated following the decision.</p><p>Kalshi contended that the ruling does not eliminate federal protections for federally regulated exchanges and expressed its intention to continue fighting.</p><p>“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,” Kalshi spokeswoman Dani Lever said in an email to CBS News.</p><p>Lever added that the company believes the CFTC’s regulations allow for sports contracts and that it will seek further review.</p><p>The Ninth Circuit’s ruling had immediate effects on the gambling industry. According to CNBC, shares of DraftKings and Flutter Entertainment, the parent company of FanDuel, increased following the decision as investors evaluated the implications for the competitive prediction-market sector.</p><p>“This is a classic circuit split,” Columbia Law School professor Joshua Mitts told CNBC. “Ultimately, this is the kind of legal controversy or legal difference of opinion which will make its way to the Supreme Court.”</p>