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A U.S. federal appeals court has upheld Nevada’s authority to regulate sports-event contracts, escalating a jurisdictional clash between federal and state regulators over prediction markets. The Commodity Futures Trading Commission sharply criticized the ruling and said the dispute could ultimately reach the U.S. Supreme Court.
The Block reported on Aug. 28 that the U.S. Court of Appeals for the Ninth Circuit found Kalshi had not sufficiently shown that the Commodity Exchange Act preempts Nevada gaming law for sports-event contracts.
The appeals court also found that the lower court did not abuse its discretion when it dissolved an injunction previously granted to Kalshi. The decision allows Nevada to enforce its own gaming rules on Kalshi’s sports-event contracts.
The dispute began last year when the Nevada Gaming Control Board ordered Kalshi to stop offering election and sports-event contracts. Kalshi argued the contracts are derivatives overseen by the CFTC and therefore are not subject to state regulation. A lower court initially granted Kalshi’s request for an injunction, then reversed that decision based on a ruling involving Crypto.com.
The central question is who has final regulatory authority over prediction markets. The CFTC has maintained that prediction-market products, including sports-related contracts, are derivatives under the Commodity Exchange Act and should therefore fall under exclusive federal jurisdiction. Some states, by contrast, argue that sports-event contracts are effectively betting products and can be regulated under existing gaming laws.
The CFTC immediately objected to the appellate ruling. “The Ninth Circuit misinterpreted the relevant statutes and regulations,” CFTC spokesman Zack Fulton said. The decision creates a split among circuit courts and could require review by the U.S. Supreme Court, he added.
Derivatives structured as swaps remain swaps regardless of the underlying asset, Fulton said. He added that the only products explicitly exempted under the Commodity Exchange Act are onions and movie box-office receipts, and argued that the Ninth Circuit created a new exception not found in the law.
Kalshi said it also plans to seek further review. “Despite this ruling, we do not believe CFTC rules prohibit sports contracts themselves,” Kalshi spokeswoman Dany Lever said. She added that Kalshi will seek additional review as the CFTC is also working to clarify the relevant rules.
As legal clashes between federal and state authorities over prediction-market regulation continue, the issue could end up before the U.S. Supreme Court if other courts reach conflicting conclusions.
