Ninth Circuit Holds Federal Commodities Law Does Not Preempt Nevada Gambling Rules on Kalshi Sports Contracts

A three-judge panel of the U.S. Ninth Circuit Court of Appeals ruled Friday that Nevada may bar prediction market operator Kalshi from offering contracts on sporting events. The court held that the federal Commodity Exchange Act does not override the state’s authority to regulate gambling.

In a 36-page opinion, U.S. Circuit Judge Ryan D. Nelson rejected Kalshi’s reading of 2010 Dodd-Frank Act reforms as “overly broad.” Nelson stressed that statutory interpretation must account for subject matter, context, and history in addition to text. He concluded it was “difficult” to believe Congress meant to displace “decades of careful regulation of gambling” through definitions in a Wall Street reform bill.

Kalshi’s Position Draws Sharp Judicial Criticism

Nelson wrote that Kalshi “has a gambling problem.” The company promotes its sports contracts as legal gambling to the public yet argues in litigation that they differ from sportsbook wagers. The opinion states this argument “strains credulity.”

A footnote observed that Kalshi’s trading affiliate functions as a market maker. The ruling cited longstanding federal rules barring designated contract markets from listing transactions tied to gaming or activities unlawful under state or federal law. Judicial precedent treats the word “shall” in those rules as mandatory.

Circuit Split Ensures Supreme Court Consideration

The Ninth Circuit’s decision conflicts with a Third Circuit ruling issued April 6 in Kalshi’s separate suit against New Jersey regulators. As reported by Gambling Insider, that split all but guarantees the core question—whether federally regulated prediction markets may offer sports event contracts—will reach the U.S. Supreme Court.

Dani Lever, speaking for Kalshi, said both circuits agree “federal law prevents states from regulating trading on a federally licensed exchange, like Kalshi.” Lever added that the company believes current CFTC regulations do not prohibit sports contracts and that the agency is clarifying its rules. Kalshi will seek further review.

The Ninth Circuit covers Nevada plus Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Washington, Guam, and the Northern Mariana Islands. Arizona Attorney General Kris Mayes said the opinion confirms that financial reform legislation “was never intended to strip states of their traditional police power over gambling.”

Mike Dreitzer, chairman of the Nevada Gaming Control Board, called the ruling complete vindication. Nevada regulators previously obtained a state-court order requiring Kalshi to deploy geofencing to block Nevada users, with fines sought at $120,000 per day of noncompliance.

The decision leaves prediction market operators facing divergent appellate precedent and renewed state-level enforcement risk until the Supreme Court provides a uniform answer.

Reporting: Gambling Insider

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