Federal Appeals Court Rules States Can Regulate Prediction Markets as Gambling
A federal appeals court ruled Friday that states can regulate prediction markets like gambling, a significant setback for the industry. The U.S. Court of Appeals for the Ninth Circuit decided that federal commodities-trading law does not preempt Nevada’s gambling law regarding sports wagers, according to a report from CNN, which cited the Associated Press.
The 3-0 ruling came from a panel of three judges appointed by former President Donald Trump. The case originated in Nevada, where regulators attempted to shut down the prediction site Kalshi. The appeals panel wrote that "the substance of the sports event contracts offered on Kalshi’s (exchange) is sports gambling, regardless of whether Kalshi calls them swaps," adding that "Kalshi’s attempts to distinguish its sports event contracts from sportsbooks betting are unpersuasive."
Prediction sites like Kalshi and Polymarket allow users to wager on a wide range of outcomes, from sports to culture, award shows, album releases, the weather, and the value of gold. These platforms have been operating as federally regulated financial exchanges, licensed by the Commodity Futures Trading Commission (CFTC) to offer "event contracts," a type of derivative swap, as noted in the CNN report.
However, 44 states have argued that these platforms constitute gambling and should be subject to state gaming laws and taxes, according to the CNN article. For its part, Nbc Sports reported that roughly 20 states are currently involved in litigation over whether prediction markets can offer sports-related contracts independent of their gambling laws.
The decision intensifies a legal conflict. The Third Circuit Court of Appeals earlier this year sided with prediction sites, halting New Jersey’s attempt to apply its state gaming laws to Kalshi. Lawyers for New Jersey have indicated they plan to take that case to the Supreme Court. The Ninth Circuit’s ruling now creates a split among federal appellate courts, which often increases the likelihood that the Supreme Court will take up the issue.
Dustin Gouker, an independent journalist who covers the prediction industry, told CNN that the decision "gets us one step closer to an almost inevitable Supreme Court case on the legality of sports prediction markets." He described the ruling as the first appellate loss for Kalshi and "pretty brutal" for the company.
Kalshi has seen billions of dollars in weekly trading volume, mostly from sports markets, according to CNN. Representatives for Kalshi did not immediately respond to CNN’s request for comment.