Kalshi Loses Nevada Appeal as Circuit Split Deepens
A Ninth Circuit ruling preserves Nevada oversight of sports contracts and raises the odds of Supreme Court review.
Kalshi has suffered its most consequential appellate setback yet in the fight over whether state gaming laws can reach federally regulated prediction markets. A unanimous panel of the US Court of Appeals for the Ninth Circuit refused to block Nevada from enforcing its licensing rules against the exchange's sports-event contracts, finding that Kalshi was unlikely to prove that federal commodities law displaces the state's authority.
The 3-0 decision keeps Nevada's oversight in force while the case continues. More importantly, it creates a direct conflict with an April ruling from a divided Third Circuit panel that favored Kalshi in its dispute with New Jersey. Two federal appellate courts now read the boundary between Commodity Futures Trading Commission jurisdiction and state gambling power differently—a configuration that increases the likelihood of Supreme Court review.
Kalshi's core argument is that its contracts trade on a CFTC-designated contract market and are therefore governed exclusively by the Commodity Exchange Act. If each state can require a gaming license or prohibit particular contracts, the company says, a national derivatives venue becomes subject to a patchwork that federal regulation was designed to avoid.
Nevada sees a different product. A contract paying out based on the result of a sports contest, the state argues, performs the economic function of a wager even if it is formatted as a derivative. State officials say federal designation does not erase longstanding police powers over gambling, licensing and consumer protection.
The Ninth Circuit did not issue a final merits judgment on every claim. It reviewed Kalshi's request for preliminary relief and concluded that the exchange had not shown the required likelihood of success. That procedural posture matters: litigation can continue, and Kalshi may seek rehearing or petition the Supreme Court. But the ruling removes the protective shield the company wanted while those proceedings unfold.
The decision follows escalating pressure. Nevada had already tested Kalshi's geofencing and threatened substantial daily penalties, while Connecticut filed a separate suit challenging the exchange's sports markets. The new appellate ruling gives state regulators in the western United States stronger legal footing, at least within the Ninth Circuit, and may encourage additional enforcement where sports betting is tightly controlled.
For Kalshi, the operational problem is larger than one state. A national market depends on pooled liquidity: more participants generally produce tighter spreads and better price discovery. State-by-state exclusions fragment that pool, complicate compliance and can push users toward offshore platforms. Yet uniformity alone does not answer the legal question of who Congress intended to regulate event contracts that resemble bets.
The CFTC's role is also under scrutiny. Federal law gives the agency authority over designated contract markets and allows it to restrict certain event contracts, including those involving gaming. States argue that this does not necessarily create complete preemption. Kalshi argues the opposite: once the federal regime applies, parallel state licensing is incompatible.
The split with the Third Circuit means the same business model may be treated differently depending on geography. Courts generally avoid such durable inconsistencies in federal law, especially when a nationwide market is involved. A Supreme Court petition is not guaranteed to be accepted, but the conditions for review are now substantially stronger.
Why it matters
The ruling could determine whether prediction markets develop as one federally supervised asset class or as a hybrid industry constrained by state gaming borders. Exchanges, brokers, market makers and institutional users need clarity because product design, liquidity and compliance costs all depend on that answer.
For states, the case concerns more than tax revenue. It tests whether consumer-protection and sports-integrity rules can be bypassed by placing a contract on a federally regulated exchange. For the CFTC, it tests the practical reach of its designation. Until a higher court or Congress resolves the conflict, Kalshi must navigate a map in which federal approval no longer guarantees uniform access.