Prediction market platforms spent the past year betting that federal law would give them one uniform answer on whether they are commodities exchanges or unlicensed sportsbooks. On August 28, the Ninth Circuit told them otherwise. The ruling is the third federal appeals-level answer to that question in 2026, and the three answers do not agree with each other. For an industry that has marketed itself on national reach, the emerging reality is a state-by-state legal map, decided court by court, with no single rulebook in sight.
What the Ninth Circuit Actually Decided
The case, KalshiEX, LLC v. Assad, arose after the Nevada Gaming Control Board sent Kalshi a cease-and-desist letter accusing it of running an unlicensed sports betting operation. Kalshi sought an injunction, arguing that its sports event contracts are federally regulated instruments under the Commodity Exchange Act (CEA) and that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over them, preempting Nevada’s gaming laws entirely.
A unanimous three-judge panel disagreed. Writing for the court, Judge Ryan D. Nelson held that “the sports event contracts were not ‘swaps’ because they were sports bets,” and that a CFTC regulation, 17 C.F.R. Section 40.11, already bars swaps involving gaming from being listed on a designated contract market in the first place. That made Kalshi’s own self-certification of the contracts unlawful under the CEA’s Special Rule provision, cutting off the exclusive-jurisdiction argument at its root. The panel affirmed the district court’s decision to dissolve Kalshi’s preliminary injunction as it applies to sports event contracts, clearing Nevada to enforce its gaming statutes against them.
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The ruling was not a clean sweep. The panel remanded a separate question, Kalshi’s election-related contracts, back to the district court for further review consistent with the opinion, leaving that narrower category of markets unresolved. In a concurrence, Judge Kenneth K. Lee wrote that he was not fully convinced Congress meant to let the CFTC categorically ban all gaming-linked contracts, but agreed the current regulation does so regardless.
Why the Word “Swap” Carries So Much Weight
The entire fight turns on a definition written into the CEA by the 1974 amendments that created the CFTC and later expanded by the Dodd-Frank Act after the 2008 financial crisis. Those amendments gave the CFTC exclusive federal jurisdiction over derivatives, including swaps, defined as instruments whose payout depends on the occurrence of a future event. Kalshi’s argument was that a contract paying out based on which team wins a game fits that definition and therefore belongs to the CFTC alone, on a designated contract market Kalshi already operates. The Ninth Circuit’s answer was that the CEA’s own carve-out matters more: a separate Special Rule provision lets the CFTC bar contracts tied to “gaming” from ever being listed on a DCM, and its implementing regulation already does so. If the underlying product is a sports bet by any other name, Nevada’s gambling laws were never preempted to begin with, because federal law never claimed the product in the first place.
A Circuit Map That No Longer Agrees
What makes the Nevada ruling significant is not that Kalshi lost, but that it lost differently than it has elsewhere. The Ninth Circuit’s opinion notes that while the Nevada appeal was pending, the Third Circuit affirmed a New Jersey district court’s order granting Kalshi the opposite result, a preliminary injunction blocking state enforcement. A separate Fourth Circuit appeal is still pending after a Maryland district court denied Kalshi’s injunction request outright. Several other district courts have issued rulings of their own, with what the panel itself described as “varied results.”
That is three federal appellate-level positions on the same legal question, pointing in different directions, inside a single calendar year. For an operator trying to run one national product, the practical effect is the same regardless of how any single case is decided: compliance now has to be built state by state and circuit by circuit, not against a single federal standard. Even the CFTC’s own amicus brief in the Nevada case stopped short of resolving the underlying question, with the panel noting that “even the CFTC, as an amicus, suggests that we can determine what constitutes a swap under the CEA,” effectively leaving the definitional fight to the courts rather than settling it as regulator.
What This Means for Finance and Market-Infrastructure Leaders
The immediate consequence lands on prediction market operators and the banks, payment processors, and card networks that support them. Any platform structured on the assumption that a CFTC designation as a contract market provides a nationwide shield now has direct appellate authority showing that assumption fails in at least one circuit and remains genuinely unsettled in others. That changes the underwriting calculus for banking partners: a prediction market client’s legal risk is no longer a single federal data point, it is a jurisdiction-by-jurisdiction assessment that can change with the next circuit to rule.
It also raises the odds that the Supreme Court eventually has to resolve the split, since a circuit conflict on a live regulatory question is one of the clearest signals the Court looks for when deciding what to hear. Until that happens, expect prediction market platforms to lean harder on geofencing and state-specific product structuring rather than a single compliance posture, and expect state gaming regulators outside Nevada and New Jersey to treat this opinion as a template for their own enforcement letters. The CFTC has already been drawing its own federal line around these markets even as the courts move independently, and the sector’s underlying banking-access problem has not gone away in the meantime; this ruling adds a state-court layer of uncertainty on top of it.
For risk and compliance teams at banks and payment companies evaluating prediction market exposure, the near-term checklist is straightforward: track the Fourth Circuit’s pending decision in the Maryland case, watch for a cert petition once the circuit split is formally on the record, and treat any single circuit’s ruling, in either direction, as informative rather than dispositive for the other 11 circuits still undecided.
The stakes go beyond Kalshi. Rival platforms built on the same designated-contract-market theory, and the exchanges and market makers that route liquidity to them, are reading this opinion as a preview of how skeptical a court can be of the “it’s a swap, not a bet” argument once a state gaming regulator pushes back in court rather than settling. Nevada’s cease-and-desist letter is now a template other state regulators can cite directly, and the Ninth Circuit’s reasoning on the CFTC’s own gaming-contract regulation gives them a federal hook to use while doing it.
Source: United States Court of Appeals for the Ninth Circuit
