The Ninth Circuit has called Kalshi’s contracts what its advertising already did: sports betting.
Kalshi’s marketing department wrote the opening line of its own legal defeat.
“KalshiEX, LLC advertises itself as ‘the first app for legal sports betting in all 50 states’,” Judge Ryan Nelson wrote in the first sentence of the Ninth Circuit’s 50-page opinion.
It appears to be a rough way to learn that ad copy can become evidence.
Kalshi has spent much of its legal battle arguing that its sports contracts are not sports bets but financial derivatives traded on a federally regulated exchange. The court noticed the slight branding inconsistency.
A unanimous three-judge panel ruled on Friday that Kalshi’s sports event contracts are, in substance, sports bets. Because those bets are not “swaps” within the meaning of the Commodity Exchange Act, they do not fall within the Commodity Futures Trading Commission’s exclusive jurisdiction. Nevada can therefore apply its gaming laws.
Calling a wager an event contract, the court effectively concluded, does not make it any less of a wager. Or, as Nelson put it with an unexpected assist from Shakespeare, “placing sports bets, even when called by another name, is still gambling”.
The ruling threatens the premise that allowed Kalshi to offer sports markets nationwide without collecting state gambling licences like particularly difficult Pokémon.
It also creates a direct split with the Third Circuit, which sided with Kalshi against New Jersey in April. In that court, a sports result could qualify as an event associated with an economic consequence and therefore support a federally regulated swap. In the Ninth Circuit, a parlay remains a parlay even if it arrives wearing a derivatives badge.
The Supreme Court may eventually have to decide which version of reality applies.
Technically, the Ninth Circuit has not issued a final judgment on whether Kalshi’s entire business is lawful.
The case concerns a preliminary injunction. Kalshi wanted the courts to stop Nevada enforcing its gambling laws while the litigation proceeded. The panel upheld the decision to dissolve that protection because Kalshi had not shown that it was likely to win its federal pre-emption arguments.
While the distinction matters legally, commercially, it offers limited comfort.
The opinion devotes dozens of pages to explaining why Kalshi’s sports contracts probably are not swaps, why federal law probably does not displace Nevada’s gambling laws and why the company’s contracts appear to violate an existing CFTC rule.
This is not a court politely reserving judgment. It is a court explaining, at considerable length, why it does not believe the pitch.
The decision is now binding precedent within the Ninth Circuit, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington, along with US Pacific territories.
That includes California, the largest state without legal sports betting and a prize market for any operator claiming to offer it legally anyway.
Kalshi’s legal distinction is not entirely frivolous.
Traditional sportsbooks generally set odds and take the other side of customers’ bets. Kalshi operates a designated contract market where users trade positions with one another and prices move according to supply and demand.
Brian Quintenz, a Kalshi board member and former CFTC commissioner, told Bloomberg that the ruling had created “more confusion than clarity.” He argued that betting against a house is fundamentally different from trading with other market participants.
Quintenz also said the Commodity Exchange Act was deliberately written to allow derivatives based on events carrying “any financial, commercial or economic consequence,” because those contracts can assist with risk management and price discovery.
The Ninth Circuit’s answer was essentially: nice exchange, still a bet.
The court compared someone wagering at Caesars that the Las Vegas Raiders would win by more than 7.5 points with someone buying a Kalshi contract that pays out if the Raiders win by more than 7.5 points.
Different plumbing, same football game, same uncertain outcome and same prospect of losing the money.
“For Kalshi to deny that its sports event contracts are sports bets under a reasonable person’s understanding is disingenuous,” Nelson wrote.
The company’s offerings included game winners, point spreads, individual player propositions and multi-leg combinations. The latter are functionally parlays, one of the most recognizable and lucrative sportsbook products.
Kalshi may describe users as traders, positions as contracts and odds as prices. The court looked past the vocabulary and concentrated on what customers were doing with their money.
This substance-over-label approach is the ruling’s most important feature. Registering an exchange with the CFTC does not automatically place every product listed on that exchange beyond state control. The product must first be something over which Congress gave the CFTC exclusive jurisdiction.
For sports contracts, the Ninth Circuit said Kalshi had failed that qualifying round.
There is another awkward fact for Kalshi. The CFTC never approved these sports contracts.
Kalshi listed them through self-certification. This allows a registered exchange to tell the CFTC that a new contract complies with federal law and commission rules, then begin offering it without waiting for an affirmative approval order.
Self-certification is useful, but it is not a federal blessing delivered on official stationery.
The Ninth Circuit stressed that the CFTC never placed Kalshi’s sports contracts into a 90-day review process and never issued an order approving them.
Meanwhile, the current version of CFTC Rule 40.11 says registered exchanges “shall not” list certain contracts involving, relating to or referencing gaming. The court interpreted “shall not” using its traditional legal meaning of “do not do this”.
It therefore concluded that Kalshi’s listing of sports contracts was itself unlawful under the existing rule.
The CFTC has proposed rewriting Rule 40.11 to create a contract-by-contract review framework. But proposed regulations have no legal effect, however promising their press releases may sound. Until the rewrite becomes final, the existing prohibition remains in place.
This leaves Kalshi in the unusual position of claiming exclusive protection from a federal regulator whose current rule appears to prohibit the product requiring protection.
Even a completed rewrite may not resolve the deeper problem. Agencies can change regulations, but they cannot grant themselves powers that Congress withheld. If sports contracts are not swaps, the CFTC cannot make them swaps simply by becoming more enthusiastic about prediction markets.
Losing sports would not be a minor product adjustment for Kalshi.
According to the Ninth Circuit, sports accounted for more than 90 per cent of Kalshi’s trades in 2025 and 95 per cent of its revenue.
Election contracts made prediction markets famous. Sports contracts paid the bills.
The court sent the dispute over election markets back to the Nevada district court because their status had not been properly analysed. Election trading therefore remains undecided.
That means the product for which Kalshi is best known survives for another round. The product responsible for almost all its revenue has just taken the loss.
If the Ninth Circuit’s reasoning spreads, Kalshi may have to block sports trading in states that take enforcement action. It could seek state licences, but the suggestion that it merely needs “50 licences” makes the process sound far more convenient than it is.
Some states do not permit sports betting at all. Others limit licences to casinos, tribal operators, lotteries or their selected partners. Each jurisdiction can impose its own rules on age limits, taxes, advertising, college sports, bet types and responsible gambling.
California, for example, does not have a licence sitting behind a counter waiting for Kalshi to fill in a form.
State-by-state compliance would also damage the national liquidity that makes an exchange model attractive. A contract available in New Jersey but unavailable in Nevada, California or Washington is no longer one seamless national market.
Kalshi could end up operating less like the New York Stock Exchange and more like a collection of regional betting shops that happen to share an app.
The legal question has also become entangled with the rather less theoretical subject of young adults betting billions on sport.
CNN estimated that Kalshi users aged 18 to 20 traded approximately $5.4 billion during 2026, including about $3.9 billion on sports and parlays. Kalshi said that age group represented only 3.14 per cent of its total volume, which reached approximately $173 billion.
Both figures can be true. Neither makes the issue disappear.
Financial exchanges generally admit customers from 18, while most state-regulated sportsbooks impose a minimum age of 21. From Kalshi’s perspective, that is the rule applying to its federally regulated market. From the states’ perspective, it looks remarkably like teenagers and young adults accessing sportsbook products through a financial-market loophole.
Add parlays, mobile advertising and the start of the NFL season, and regulators do not have to work especially hard to make the issue politically appealing.
The Ninth Circuit has now given them a strong legal argument as well. Regulators can say that these are sports bets, that federal law does not displace their authority and that Kalshi must follow the same rules as locally licensed operators.
Once the product is legally classified as gambling, the consequences extend far beyond licensing. State rules governing minimum ages, prohibited markets, consumer protection, problem-gambling measures and taxation all come back into play.
The Third and Ninth Circuits reached opposite results largely because they read the same words at different levels of literalism.
The Commodity Exchange Act defines certain swaps by reference to an event or contingency associated with a potential financial, economic or commercial consequence.
The Third Circuit reasoned that a sporting result can fit those words. People trade contracts on an event, money changes hands and the event therefore has an economic consequence.
The Ninth Circuit looked at the wider statutory context. Dodd-Frank was a response to a financial crisis, not a stealth attempt to appoint the CFTC commissioner of every point spread in America.
Congress has repeatedly legislated specifically about gambling, sports betting and tribal gaming. The panel found it implausible that lawmakers quietly transferred nationwide sports-gambling authority to the CFTC through broad language in a Wall Street reform statute.
“The CFTC is not a national gambling regulator,” Nelson wrote. “No one suggested it was until over a decade after the law was passed.”
The court also invoked the major-questions doctrine, under which judges expect clear congressional authorisation before agencies assume powers of vast economic and political significance.
Reading “event” broadly enough to federalise a multibillion-dollar industry traditionally overseen by states and tribes, the panel concluded, would be an elephant in a mousehole.
Or perhaps, in this case, an entire sportsbook in a footnote.
The circuit split makes Supreme Court review more likely.
Kalshi can first ask the Ninth Circuit panel to reconsider or seek rehearing before a larger en banc court. It can then petition the Supreme Court. The justices may choose to wait for more appellate decisions or for either case to reach a final judgment.
Waiting comes with costs, however. A nationwide online platform cannot easily operate under two incompatible definitions of its central product.
In the Third Circuit, Kalshi has preliminary protection against New Jersey enforcement. In the Ninth Circuit, Nevada can treat substantially identical contracts as unlicensed sports betting.
Similar cases are already moving through courts around the country. Nevada, Massachusetts, Michigan and Washington have obtained orders restricting Kalshi, while the CFTC has intervened against state regulatory action elsewhere.
The legal map is beginning to resemble one of the platform’s own markets, except nobody can agree on the resolution source.
If Kalshi ultimately wins, the consequences could extend well beyond prediction-market start-ups.
A Supreme Court ruling that sports event contracts are federally regulated swaps could remove qualifying products from state gaming control. Major sportsbook operators would have a strong incentive to acquire, partner with or establish CFTC-regulated exchanges.
Why maintain dozens of state licences if the same products can be offered nationally as derivatives?
States could lose licensing fees and gambling taxes. Tribal operators could see their negotiated exclusivity rights weakened. State restrictions on customer age, college betting, advertising and particular wager types might no longer apply to federally listed contracts.
Control would instead sit primarily with the CFTC. That may suit the industry while the commission is supportive, but regulators are not fixed features of the landscape. Administrations change, commissioners leave and political priorities reverse.
A single federal regulator is wonderfully efficient until it dislikes your product.
If Kalshi loses, state and tribal authority survives. But Kalshi’s nationwide sports model does not. The company would need licences or commercial partnerships wherever those routes exist, while withdrawing from jurisdictions where they do not.
The ruling could also encourage courts to stop treating “prediction markets” as one tidy product category. Contracts tied to inflation, interest rates, weather or commercial risks may look like conventional derivatives. Point spreads, parlays and player props look like something available at a sportsbook because they are something available at a sportsbook.
Awards, elections and political mention markets will occupy the uncomfortable territory in between.
The Ninth Circuit has not killed prediction markets. It has challenged the idea that attaching the word “market” to every prediction gives it federal immunity.
Kalshi still has several legal avenues and a supportive CFTC. But it now faces a judicial opinion that quotes its own sports-betting advertisement, compares its argument to hiding an elephant in a mousehole and uses Romeo and Juliet to explain why a bet remains a bet.
As appellate losses go, it was unusually well reviewed.
Featured image: Kalshi / Canva
