States Secure Major Victory in Prediction Markets Regulation Battle

POLICY WIRE — Washington, D.C. — A federal appeals court has delivered a significant victory to U.S. states in the ongoing dispute over the regulation of prediction markets. The 9th Circuit Court of Appeals dismissed Kalshi’s attempt to prevent Nevada from overseeing speculation on sporting events on its platform.

The court determined that Kalshi did not provide sufficient evidence to prove that the 1936 Commodity Exchange Act, which governs commodity futures trading, overrides Nevada’s gambling laws and prohibits the state from regulating wagers on sports events. The court clarified that these prediction market contracts are not federally regulated “swaps” but are, in fact, sports bets.

Judge Ryan Nelson of the 9th Circuit emphasized in the court’s opinion that the essence of the sports event contracts offered on Kalshi’s designated contract market is sports gambling, irrespective of how Kalshi labels them.

This legal battle between states and the federal government regarding the primary regulatory oversight of prediction markets, which enable users to wager on the outcomes of sports, elections, and various other events, is far from over. Approximately 20 states are currently engaged in litigation over prediction markets, and experts predict that the conflict will eventually reach the Supreme Court.

In a contrasting decision in April, the 3rd U.S. Circuit Court of Appeals ruled that the Commodity Futures Trading Commission, a government agency that regulates derivatives markets, has exclusive authority over sports-related event contracts on Kalshi.

Kalshi spokesperson Dani Lever acknowledged the 9th Circuit’s agreement with the 3rd Circuit on a key point: Federal law prevents states from regulating trading on a federally licensed exchange like Kalshi. However, Lever maintained that the CFTC regulations, as currently written, do not prohibit sports contracts. She added that the CFTC is working to clarify these regulations, and Kalshi will seek further review.

The Nevada Gaming Control Board welcomed the ruling, stating it validates their long-held position that this is sports betting and should be appropriately regulated by the state.

Dominick Freda, legal director of Better Markets, a nonprofit advocacy organization dedicated to financial reform, hailed the 9th Circuit’s decision as a decisive win for the rule of law and for every state that has established a regulatory framework to safeguard its residents from gambling-related harms.

Reporting by Policy-Wire (PW)