Image credit: Shutterstock
A federal appeals court has upheld Nevada’s ability to enforce state gambling laws against Kalshi’s sports contracts after finding the prediction market operator was unlikely to show that the contracts qualify as swaps under federal commodities law.
The Ninth Circuit ruling on August 28 also found that the CFTC’s existing Rule 40.11 bars certain gaming-related contracts on designated contract markets. The decision conflicts with an April Third Circuit ruling that favored Kalshi in New Jersey.
Ninth Circuit Says Kalshi Sports Contracts Are Unlikely to Qualify as Swaps
Kalshi argued that its sports contracts fall within the Commodity Exchange Act’s definition of swaps, which would place them under exclusive federal commodities oversight and preempt Nevada gambling laws.
The three-judge panel disagreed and upheld a lower court decision dissolving an injunction that had prevented Nevada regulators from enforcing state requirements against Kalshi.
Related appeals involving Robinhood and Crypto.com operator North American Derivatives Exchange were rejected the same day.
Court Says Current Rule 40.11 Bars Gaming-Related Contracts
The panel also examined CFTC Regulation 40.11, which restricts registered entities from listing contracts involving certain activities, including gaming.
The CFTC and Kalshi argued that the rule gives the agency discretion to review individual gaming-related event contracts. The Ninth Circuit rejected that interpretation, finding that the current wording imposes a prohibition.
The CFTC proposed amendments in June that would establish a new process for reviewing contracts involving gaming and other listed activities, but those changes have not yet taken effect.
Ninth Circuit Ruling Conflicts With April Third Circuit Decision
The Ninth Circuit’s interpretation differs from an April Third Circuit decision that blocked New Jersey from regulating Kalshi’s sports contracts under state gambling law.
The conflicting appellate rulings leave Kalshi facing different legal outcomes across federal jurisdictions while the CFTC considers changes to Rule 40.11.
The Nevada litigation is also continuing on separate claims involving Kalshi’s election contracts, which the Ninth Circuit returned to the district court for further consideration.
