A federal appeals court has ruled that Kalshi's sports-event contracts likely fall outside the scope of federal commodities law, dealing a blow to the prediction market platform's efforts to preempt state gambling regulations and casting uncertainty over the CFTC's proposed event-contract rules.
Ninth Circuit Rejects Kalshi's Preemption Argument
The Ninth Circuit Court of Appeals ruled on Aug. 28 that Kalshi had not shown Nevada's regulation of its sports-event contracts was likely preempted by federal commodities law. The unanimous three-judge panel found that the contracts likely functioned as sports bets rather than swaps under the Commodity Exchange Act, rejecting Kalshi's argument that operating on a CFTC-regulated designated contract market displaced state gaming laws.
Circuit Judge Ryan Nelson wrote that "the CFTC is not a national gambling regulator," adding that Kalshi's broader interpretation lacked a limiting principle and did not fit the surrounding statutory framework. The court said the contracts likely fell outside the applicable meaning of "swap" because they functioned as sports bets.
CFTC Rulemaking Faces New Questions
The ruling did not invalidate the CFTC's proposed event-contract rules, which would establish a 90-day review process for certain event contracts involving gaming activities. However, the opinion raised concerns under the major-questions doctrine, suggesting that Kalshi's broad interpretation of "swap" would trigger heightened judicial scrutiny.
Gaming attorney Daniel Wallach argued that the CFTC's rulemaking was "DOA" because of the court's major-questions analysis. Ripple CTO emeritus David Schwartz disputed that reading, arguing that Congress could create a federal framework for exchange-traded contracts without displacing conventional state-regulated sportsbooks.
Circuit Split Raises Supreme Court Stakes
The Ninth Circuit's decision conflicts with a Third Circuit ruling favoring Kalshi in its dispute with New Jersey, making Supreme Court review more plausible. New Jersey faced a Sept. 3 deadline to seek further review of the Third Circuit decision. Kalshi could also seek Ninth Circuit rehearing or petition the Supreme Court directly.
The CFTC's June proposal would amend Rule 40.11, which governs event contracts involving gaming, terrorism, assassination, war and activities unlawful under federal or state law. The Federal Register notice closed for public comments on July 27. The agency can revise, finalize or withdraw the proposal after reviewing those submissions.
For now, Nevada can enforce its gaming laws against Kalshi's sports contracts. The CFTC proposal remains alive, but the Ninth Circuit opinion provides prospective challengers with another argument against any final rule claiming broad authority over sports-event markets.
