A U.S. federal appeals court has ruled that Kalshi cannot stop Nevada’s gaming regulators from overseeing its prediction markets platform, dealing a significant blow to the company.
The ruling also intensified a growing legal battle over whether prediction markets are financial products regulated by Washington or a form of sports gambling controlled by individual states.
In a unanimous 3-0 decision on Friday, the 9th U.S. Circuit Court of Appeals in San Francisco said Kalshi was unlikely to succeed in arguing that the federal Commodity Exchange Act overrides Nevada’s authority to require a state gaming license for contracts that allow users to wager on the outcomes of sporting events.
Register for the next Tekedia Mini-MBA.
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
The ruling represents one of the biggest legal setbacks yet for the rapidly expanding prediction markets industry. It sharply increases the chances that the U.S. Supreme Court will eventually decide who has regulatory authority over the sector.
The decision also creates a direct split among federal appeals courts. In April, the 3rd U.S. Circuit Court of Appeals ruled that New Jersey could not regulate Kalshi’s platform, concluding that federal commodities law likely preempts state action. The conflicting rulings mean identical products are now subject to different legal standards depending on the jurisdiction.
The dispute sits at the center of a broader fight over prediction markets, which have grown rapidly since the 2024 U.S. presidential election after platforms such as Kalshi and Polymarket gained attention for more accurately forecasting Donald Trump’s victory than many traditional opinion polls.
While prediction markets originally focused on elections and economic indicators, they have expanded into sports, weather, entertainment, and financial events, blurring the line between regulated financial contracts and traditional betting markets.
Kalshi argued that its contracts are federally regulated derivatives, known as swaps, under the Commodity Exchange Act and the Dodd-Frank financial reforms. The company says that places oversight exclusively with the Commodity Futures Trading Commission (CFTC), preventing states from applying their own gambling laws.
The 9th Circuit rejected that argument.
Circuit Judge Ryan Nelson wrote that Kalshi’s sports-event contracts possess the defining characteristics of sports betting, describing them as “a quintessential form of gambling” rather than financial derivatives.
He also pointed to Kalshi’s own marketing, noting that the company had advertised itself as “the first app for legal sports betting” across all 50 U.S. states.
“It is difficult, then, to conclude that Congress intended to upend its decades of careful regulation of gambling based on broad definitions of the words used in a Wall Street Reform Bill,” Nelson wrote.
“The CFTC is not a national gambling regulator,” he added. “No one suggested it was until over a decade after the law was passed.”
The ruling bolsters the argument made by Nevada regulators and a growing number of state attorneys general that sports betting has historically fallen under state police powers, even when technology companies package wagers as financial contracts.
“The court confirmed what has been clear since the beginning — that states regulate sports betting, and the CFTC has nothing to do with it,” said Nicole Saharsky, a lawyer representing the Nevada Gaming Control Board.
Arizona Attorney General Kris Mayes, who filed criminal charges against Kalshi earlier this year alleging it operated an illegal gambling business, welcomed the ruling.
“Calling a sports bet a ‘swap’ doesn’t make it one,” Mayes said. “Financial reform legislation was never intended to strip states of their traditional police power over gambling.”
The case exposes a widening regulatory conflict across the United States.
The CFTC, under President Donald Trump’s administration, has asserted exclusive authority over prediction markets and has challenged enforcement actions by regulators in nine states, including New York. But several states have continued pursuing Kalshi through courts and administrative actions.
Nevada, Massachusetts, Michigan and Washington have all obtained court orders limiting Kalshi’s operations within their borders, while New Jersey is weighing whether to appeal the separate 3rd Circuit ruling before a September deadline.
That patchwork of decisions creates significant uncertainty for prediction market operators attempting to offer nationwide contracts.
The legal stakes extend well beyond Kalshi.
Platforms including Polymarket, Coinbase, Gemini Titan and other prediction market operators have expanded offerings tied to sports, elections, inflation, interest rates and cultural events. A Supreme Court ruling in favor of states could force companies to obtain gaming licenses across multiple jurisdictions or withdraw sports contracts from certain markets.
A ruling in favor of Kalshi and the CFTC, by contrast, could dramatically reshape the U.S. sports betting industry by allowing federally regulated prediction markets to compete directly with state-licensed sportsbooks.
The appeals court upheld a November 2025 decision by U.S. District Judge Andrew Gordon, who dissolved an earlier injunction that had temporarily allowed Kalshi to continue offering sports-event contracts in Nevada.
However, the judges sent part of the case back to Gordon for further review. While his earlier ruling focused on sports contracts, Kalshi’s election-event contracts were not fully addressed. Judge Nelson said those contracts appear to be illegal under Nevada law, although they represent a much smaller portion of Kalshi’s business.
The case will now return to the district court for further proceedings on that issue.
The decision is likely to become a defining moment for the prediction markets industry because it shifts the debate from whether the products are innovative financial instruments to whether they are fundamentally gambling products subject to long-established state regulation.
With federal appeals courts now divided, pressure is mounting for the Supreme Court to provide a nationwide interpretation of the Commodity Exchange Act, Dodd-Frank, and the respective powers of the CFTC and state gaming regulators.