Ninth Circuit's Ruling Aligns Kalshi's Contracts with Sports Betting Laws
The Ninth Circuit has effectively classified Kalshi’s contracts as sports betting, echoing the company's own advertising claims.
Kalshi's marketing claims just became courtroom fodder. Judge Ryan Nelson pointedly referenced the company's assertion that it is “the first app for legal sports betting in all 50 states” in his introduction to the Ninth Circuit’s 50-page decision.
It’s a harsh lesson: sometimes, promotional material becomes an unintended admission in legal disputes.
In an ongoing legal tussle, Kalshi has maintained that its contracts are not mere sports wagers but rather financial derivatives traded on a federally regulated exchange. However, the court highlighted a branding conflict in this argument.
A unanimous panel declared that Kalshi’s offerings should be viewed as sports bets. The court ruled that these transactions do not meet the definition of "swaps" as outlined by the Commodity Exchange Act, thereby placing them outside the Commodity Futures Trading Commission's (CFTC) jurisdiction. As a result, Nevada retains the authority to enforce its gambling laws.
The Ninth Circuit has sent a clear message: rebranding a bet as an event contract doesn’t change its core nature. As Judge Nelson aptly quoted, “placing sports bets, even when called by another name, is still gambling.”
This ruling jeopardizes Kalshi’s ability to operate its sports markets across the country without having to navigate the tedious maze of state gambling licenses.
Moreover, the panel’s decision contrasts sharply with a previous judgment from the Third Circuit, which sided with Kalshi in a case against New Jersey, arguing that sports results could indeed qualify as economic events warranting federal treatment. In the Ninth Circuit, however, a parlay remains just that, no matter how you dress it up.
Eventually, the Supreme Court might have to weigh in on which perspective will govern.
Nevada's Right to Enforce Gambling Laws Amid Ongoing Litigation
It’s important to clarify that the Ninth Circuit hasn’t delivered a conclusive verdict on the legality of Kalshi's entire operation.
The case revolved around a preliminary injunction; Kalshi sought to prevent Nevada from enforcing its gambling regulations during the litigation process. The panel upheld the rejection of this injunction, largely because Kalshi couldn’t convincingly argue that it was likely to prevail on its federal preemption claims.
While this legal nuance might be reassuring on paper, its commercial implications are far from favorable.
The court dedicated numerous pages to dissecting why Kalshi's contracts probably fall outside the "swaps" category, why federal law seemingly doesn’t override Nevada’s regulations, and why the company's contracts appear to violate existing CFTC rules.
This isn't a polite withholding of judgment; it’s a deliberate, detailed dismissal of Kalshi’s claims.
The ruling has now established binding precedent within the Ninth Circuit, which spans states like California, Alaska, and Arizona, effectively encompassing a significant portion of the U.S. market. Notably, that includes California, a key market with no legal sports betting to date.
User-to-User Trading Doesn’t Transform Bets into Swaps
Kalshi's legal stance, while unconventional, isn’t without merit.
Unlike traditional sportsbooks, which set odds and take opposing bets, Kalshi operates a designated contract market where users trade among themselves, with prices fluctuating based on demand and supply.
Brian Quintenz, a Kalshi board member and former CFTC commissioner, remarked to Bloomberg that the ruling has resulted in “more confusion than clarity.” He pointed to the distinct difference between betting against a house and trading with other users.
He further argued that the Commodity Exchange Act was explicitly written to allow derivatives based on events with potential economic outcomes, which facilitate both risk management and price discovery.
The Ninth Circuit, however, responded with a straightforward assertion: no matter how cleverly crafted the terms, a bet is still a bet.
The court drew a parallel between someone betting at a sportsbook on the Las Vegas Raiders defeating their opponent by a specified margin and a customer purchasing a Kalshi contract with the same conditional payout.
Despite differing frameworks, the underlying uncertainty of the game and the risk of financial loss remains constant.
In the judge's words, “For Kalshi to deny that its sports event contracts are sports bets under a reasonable person’s understanding is disingenuous.”
Kalshi's offerings—ranging from game outcomes to point spreads and player propositions—contain elements synonymous with traditional bets, including parlays, a staple of any sportsbook.
Kalshi might refer to its customers as "traders," its positions as "contracts," and its odds as "prices," but the court focused on the transaction's intent rather than its terminology.
This approach—prioritizing substance over labels—is at the heart of the ruling. Registering a market with the CFTC doesn’t automatically exempt its products from state regulation; they must be within the parameters of CFTC's jurisdiction as defined by Congress.
When it comes to sports contracts, the Ninth Circuit maintained that Kalshi has failed to meet that criterion.
Self-Certification Does Not Equate to Federal Approval
Here's another uncomfortable fact for Kalshi: the CFTC never officially approved its sports contracts.
Instead, Kalshi relied on self-certification, a process allowing registered exchanges to assert compliance with federal rules and start offering new products without waiting for explicit endorsement.
However, self-certification offers no formal federal endorsement.
The Ninth Circuit emphasized that the CFTC never evaluated these sports contracts in a public review and never granted an official approval.
CFTC Rule 40.11 explicitly prohibits exchanges from listing contracts related to gaming unless they comply with specific regulations. The court interpreted the rule's language to mean that listing sports contracts was itself unlawful.
The CFTC has hinted at an upcoming modification to Rule 40.11 that could allow for contract-specific reviews. But until any proposals are finalized, the current restrictions remain effective.
This situation leaves Kalshi claiming regulatory protection from an agency whose existing rules seem to deny that same product legitimacy.
Even if the CFTC eventually revises its rules, it doesn’t grant them authority that Congress hasn't explicitly delegated. If sports contracts don’t fit the mold of "swaps," becoming enthusiastic about prediction markets won’t change that fact.
Ruling Poses Significant Risk to Kalshi's Revenue Streams
Losing the ability to offer sports contracts would be devastating for Kalshi.
The Ninth Circuit revealed that sports contracts constituted over 90% of Kalshi's trades and 95% of its revenue in 2025.
While election contracts made prediction markets noteworthy, it's sports contracts that keep the lights on.
The court shifted the discussion regarding election markets back to the Nevada district court, as their status had not been properly evaluated. For now, the market Kalshi is known for lives on, but the primary revenue stream has just been dealt a serious blow.
If the reasoning of the Ninth Circuit gains traction, Kalshi might find itself forced to cease sports trading in states that choose to enforce their laws. While pursuing state licenses could be a path, the simplification of obtaining “50 licenses” belies the reality of a complex regulatory environment.
Some states ban sports betting outright, while others restrict licenses to specific entities like casinos, tribal operators, or government lotteries. Each state can dictate its rules regarding age limits, taxes, advertising regulations, and responsible gambling measures.
California, for instance, doesn’t have a waiting license for Kalshi to apply for; it's simply not available.
This state-by-state compliance would undermine the national liquidity that underpins an exchange model. A contract available in New Jersey but not in California or Nevada doesn't create a cohesive national market.
Kalshi could find itself functioning more like a patchwork of regional betting operations rather than a unified platform.
Youth Participation in Sports Trading Sparks Regulatory Concerns
The legal situation intersects with an increasingly pressing concern about young adults wagering substantial amounts on sports.
Estimates from CNN indicate that users aged 18 to 20 engaged in around $5.4 billion in trades in 2026, with $3.9 billion tied to sports. Kalshi claims this demographic constituted only 3.14% of its total volume, which reportedly reached approximately $173 billion.
Both claims can hold true, but neither alleviates the issue.
While financial exchanges typically allow participation from 18, most state-regulated sportsbooks require bettors to be 21 or older. Kalshi may argue that its federally regulated structure adheres to those age requirements, but states see a different picture—a loophole that permits minors to access what looks like sportsbook products.
When combined with features like parlays, mobile marketing, and the upcoming NFL season, it becomes politically palatable for regulators to act.
The Ninth Circuit’s ruling has provided them with a compelling legal foundation to assert that these transactions are indeed sports bets. It opens the door for states to mandate that Kalshi complies with the same rules as licensed sportsbooks.
A legal classification of these products as gambling carries far-reaching implications. State regulations governing everything from minimum ages and prohibited market types to consumer protections and tax structures come back into play.
Divergent Appellate Decisions Leave Kalshi in a Legal Quandary
The conflicting conclusions drawn by the Third and Ninth Circuits stem primarily from their differing interpretations of the same statutory language.
The Commodity Exchange Act specifies swaps by referencing events or contingencies tied to potential economic outcomes.
The Third Circuit concluded that a sporting outcome aligns with this definition since contracts are traded, funds exchange hands, and the events have financial implications.
Conversely, the Ninth Circuit considered the broader statutory context. They recognized that Dodd-Frank emerged from a financial crisis and was not intended as a way for the CFTC to govern every sports betting scenario across the country.
Congress has persistently enacted laws specifically addressing gambling, sports betting, and tribal gaming. Thus, the Ninth Circuit panel deemed it implausible that lawmakers would delegate comprehensive sports-gambling authority to the CFTC through vague phrasing in a financial regulation statute.
As Judge Nelson stated, “The CFTC is not a national gambling regulator.” He further pointed out that this perspective was not even introduced until well after the legislation had been passed.
The court also brought up the major-questions doctrine, which requires clear congressional intent before an agency can claim sweeping powers over significant economic sectors.
To broadly interpret “event” in a manner that would nationalize an extensive and valuable industry typically managed at the state and tribal levels would be akin to forcing an elephant into a mousehole.
Or in this case, stuffing an entire sportsbook into a mere footnote.
A Circuit Split Heightens the Likelihood of Supreme Court Involvement
The conflicting appellate rulings create mounting pressure for the Supreme Court to engage.
Next, Kalshi can either petition for reconsideration within the Ninth Circuit or seek a rehearing before an en banc court. Eventually, it may escalate the issue to the Supreme Court, which may choose to hold off for additional appellate outcomes or until a final judgment is reached in either case.
However, delay brings its own risks. A nationwide platform can’t feasibly operate under two incompatible definitions of its core product.
While the Third Circuit provides Kalshi with interim protection against New Jersey enforcement, pending proceedings in the Ninth Circuit could allow Nevada to classify nearly identical contracts as unregulated sports betting.
Similar lawsuits are currently weaving through various courts. States like Nevada, Massachusetts, Michigan, and Washington have already secured orders limiting Kalshi’s operations, while the CFTC has stepped in to counter state regulatory measures in other locales.
The legal landscape is becoming increasingly fragmented, resembling one of Kalshi's own markets, only without consensus on how to resolve the core issue.
The Implications of Either Outcome Could Reshape the Industry
Should Kalshi emerge victorious, the ripple effects could reach far beyond the world of prediction markets.
A Supreme Court finding that sports event contracts are indeed federally regulated swaps could shift oversight away from state control. Major sportsbooks might then flock to acquire or align with CFTC-regulated exchanges.
Why bother with countless state licenses if these products can be marketed nationally as derivatives?
States could see a diminishment of licensing fees and tax revenues. Tribal agreements guaranteeing exclusivity could face erosion. Local mandates surrounding customer age, college betting, and specific wager types could become irrelevant for federally recognized contracts.
Authority would shift predominantly to the CFTC. While this could cater to the industry under a supportive commission, regulatory bodies are not constant entities; administrations evolve, commissioners transition, and priorities can flip.
A singular federal authority is appealing—until that authority holds a position contrary to your interests.
On the flip side, if Kalshi loses, states and tribes retain their governance. Yet, Kalshi's national model for sports betting would crumble. The company could end up needing licenses or partnerships wherever those pathways exist and retreating from jurisdictions lacking them.
The ruling could also alter how courts view “prediction markets,” preventing them from treating all such products as a homogenous category. While contracts related to inflation, interest rates, or other risks may resemble standard derivatives, sports-related contracts appear and function just like traditional wagering options available at any sportsbook.
Products tied to awards, elections, and political events will likely find themselves in a similarly ambiguous space.
The Ninth Circuit hasn't extinguished prediction markets altogether; rather, it has challenged the notion that calling something a market is enough for it to evade regulatory scrutiny.
Kalshi still has multiple legal avenues to explore and a supportive CFTC to back it up. Yet, looming over its prospects is a judicial opinion that utilizes its own marketing language, invokes literary metaphors, and firmly emphasizes that a bet remains a bet.
In terms of legal defeats, this one has been particularly poignant.
Featured image: Kalshi / Canva
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