Kalshi has suffered a significant legal setback in its fight against state regulation, after a federal appeals court ruled that Nevada can enforce its gambling laws against the prediction-market platform.
The 9th U.S. Circuit Court of Appeals, in a unanimous 3-0 decision, rejected Kalshi’s attempt to prevent Nevada gaming authorities from requiring the company to obtain a state gaming license for contracts tied to sporting events.
The ruling adds another major complication to an increasingly contentious question in the United States: should prediction markets be regulated primarily as financial products by federal authorities, or as gambling operations by individual states?
The decision also puts the 9th Circuit at odds with the 3rd U.S. Circuit Court of Appeals, which ruled earlier this year that New Jersey could not regulate Kalshi’s prediction-market operations. That divide could ultimately push the dispute toward the U.S. Supreme Court.
At the heart of Kalshi’s argument is the federal Commodity Exchange Act. Kalshi and the Commodity Futures Trading Commission (CFTC) have maintained that contracts based on sporting events qualify as financial swaps and therefore fall under federal regulatory authority.
The 9th Circuit was not persuaded.
Circuit Judge Ryan Nelson said the contracts offered by Kalshi bear the defining characteristics of sports betting, which has traditionally been regulated by the states. The court also pointed to Kalshi’s own marketing, noting that the company had promoted itself as a platform for legal sports betting across the country.
The ruling questioned whether Congress, through financial reforms enacted in 2010, intended to remove states’ longstanding authority over gambling.
“The CFTC is not a national gambling regulator,” Nelson wrote, emphasizing that federal financial legislation should not automatically be interpreted as displacing state gambling laws.
The case carries implications well beyond Nevada. Prediction markets have expanded rapidly in recent years, with platforms such as Kalshi and Polymarket offering contracts tied to elections, sports, economic indicators, weather and entertainment.
The sector gained particular attention during the 2024 U.S. presidential election, when prediction markets drew widespread interest after producing forecasts that in some cases proved more accurate than traditional polling.
Sports contracts, however, have become the biggest flashpoint in the regulatory fight.
Nevada, Massachusetts, Michigan and Washington have all secured court orders limiting Kalshi’s ability to offer sports-related contracts. The CFTC, meanwhile, has asserted that it has exclusive authority over prediction markets and has challenged regulatory efforts by several states.
The Nevada dispute stems from a federal court battle that began after state regulators sought to apply Nevada’s gaming rules to Kalshi. A federal judge in Las Vegas initially allowed the company to continue offering sports contracts in the state but later dissolved that protection.
The 9th Circuit has now upheld that later ruling.
The appeals court also distinguished between Kalshi’s sports contracts and its election-related offerings. Judge Nelson said the election contracts appear to violate Nevada law, although they represent a considerably smaller portion of the company’s business.
The court sent that portion of the dispute back to the federal trial court in Las Vegas for further review.
With two federal appeals courts now reaching conflicting conclusions over state authority, the legal battle surrounding prediction markets is far from settled. The outcome could determine how a rapidly expanding industry is regulated across the country — and whether states retain control over what they consider gambling within their borders.
