A federal appeals court ruled on August 28, 2026, that states retain the right to regulate prediction market platforms as gambling, delivering a major defeat to Kalshi and setting up a legal showdown at the U.S. Supreme Court amid a widening circuit split.
The legal landscape surrounding online prediction markets fractured further when the 9th U.S. Circuit Court of Appeals issued a unanimous 3-0 ruling on August 28, 2026. The three-judge panel concluded that federal commodities-trading law does not preempt Nevada from requiring a gaming license for event contracts tied to sports. The decision marks the largest courtroom defeat for the prediction-market industry to date.
The Ninth Circuit Decision and the End of the Swap Defense
Platforms like Kalshi have long maintained that they operate as federally regulated financial exchanges under the oversight of the Commodity Futures Trading Commission. By issuing event contracts classified as derivative swaps, these platforms argued they remained entirely outside the reach of state gaming boards.
The Ninth Circuit flatly rejected that defense. The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps,
the panel wrote in its opinion, adding that Kalshi’s attempts to distinguish its products from standard sportsbooks betting were unpersuasive.
State Enforcement and the Clash With Federal Regulators
The litigation originated in Nevada, where state regulators moved to halt Kalshi’s operations. Nevada Governor Joe Lombardo praised the ruling as a crucial measure to safeguard the integrity of the state’s gaming industry. Mike Dreitzer, chair of the Nevada Gaming Control Board, stated that the decision completely vindicated the state’s position.
At least four states including Nevada, Massachusetts, Michigan, and Washington have secured court orders restricting Kalshi’s activities. Meanwhile, roughly 20 states are involved in active litigation regarding whether prediction markets can offer sports contracts independent of local gaming laws.
Conversely, the federal government has pushed back. Under the Trump administration, the CFTC has claimed exclusive authority over prediction markets and sued nine states to block local enforcement. Nicole Saharsky, a lawyer representing the Nevada Gaming Control Board, maintained that the court confirmed states regulate sports betting and that the CFTC holds no jurisdiction over the practice.
A Dueling Circuit Split and the Road to the Supreme Court
Friday’s ruling directly contradicts a previous decision from the 3rd U.S. Circuit Court of Appeals in Philadelphia. In that case, the Third Circuit ruled that New Jersey could not apply its state gaming laws against Kalshi, holding that federal commodities law preempted state interference with a federally licensed exchange.
Legal experts describe the divergence as a textbook conflict between appellate jurisdictions. This is a classic circuit split,
said Joshua Mitts, a professor at Columbia Law School, adding that such legal controversies often find their way to the Supreme Court.
Kalshi vowed to continue its legal fight. Company spokesperson Dani Lever emphasized that management still believes current CFTC rules do not prohibit sports contracts and noted that the federal agency is working to clarify those regulations. We will be seeking further review,
Lever said.
Market Reactions and Economic Stakes
The stakes extend far beyond traditional sportsbooks. Prediction platforms have expanded rapidly, handling billions of dollars in weekly trading volume across markets covering everything from politics and economics to culture and weather.
