The Ninth Circuit Just Made the Prediction Market Question a Supreme Court Question

A three-judge panel of the Ninth Circuit ruled on Friday that the Commodity Exchange Act does not shield Kalshi from Nevada’s gaming law. The decision was unanimous. The panel held that the exchange’s sports event contracts look like bets rather than federally regulated swaps, and that Nevada may therefore enforce its own rules against them.

Circuit Judge Ryan Nelson, writing for the panel, described Kalshi’s sports business as “a quintessential form of gambling.” The court upheld District Judge Andrew Gordon’s decision to dissolve the preliminary injunction that had been holding Nevada off.

For operators who have spent eighteen months being told that federal listing settles the question, that sentence is the whole story.

What actually changed

Not the legality of prediction markets. Not the CFTC’s authority over event contracts generally. What changed is the answer to a narrower and more consequential question: whether a contract whose subject is the outcome of a sporting event becomes a swap simply because it is listed on a federally designated exchange.

The Ninth Circuit says no. The substance of the instrument governs, not the venue on which it trades. Once a court is willing to look past the wrapper and ask what the customer is actually doing, a sports event contract starts to resemble a wager, and wagers are a matter of state law.

That reasoning is portable. It is not confined to Nevada, and it is not confined to Kalshi.

The split is now real

In April, the Third Circuit reached the opposite conclusion, holding that Kalshi’s sports event contracts are likely swaps and therefore protected from New Jersey’s gambling law. Two federal appellate courts have now looked at materially the same product and come to incompatible answers.

A circuit split of this kind is the most reliable route to Supreme Court review that exists. New Jersey’s deadline to petition is 3 September. Kalshi has said it will seek further review of the Ninth Circuit decision.

So the question is no longer whether this reaches the Supreme Court. It is when, and on which record.

What operators should take from this

The regulatory arbitrage window is closing, and it was never as wide as it was sold. A federal listing was treated in a great many boardrooms as a general licence to offer sports outcomes in states that had not licensed the operator. One circuit has now said plainly that it is not. Any commercial plan that assumed otherwise needs revisiting before the Supreme Court rules, not after.

Geography now determines exposure, and that is intolerable for a national product. A prediction market operating identically in Nevada and New Jersey currently faces opposite legal treatment. No compliance function can build a durable programme on that, and no counterparty can price it. This is precisely the instability that forces settlement at the highest level.

Tribal operators have a specific interest here that is easy to overlook. The Ninth Circuit’s reasoning — that the substance of the activity governs, not its federal wrapper — is the same principle that underpins exclusivity compacts. A ruling that a federally listed instrument can still be a bet under state law is, structurally, a ruling that supports the position tribal nations have been advancing about their own gaming markets.

Nothing is settled, and acting as though it is would be the second mistake. A preliminary injunction ruling is a judgment about likelihood of success, not a final determination. Kalshi has not lost the war; it has lost the argument that there was never a war to fight.

The position we would take

The industry spent a year debating whether prediction markets were gambling. That debate is now going to be resolved by nine people rather than by the market, and the timeline is measured in months.

Operators who have been waiting for clarity before committing should understand that clarity is coming, and that it will be binary. Operators who have already committed on the assumption that federal listing was dispositive should be modelling the other outcome now, while there is still time to do something about it.

The Ninth Circuit did not end this. It guaranteed that someone with final authority will.

SCCG Management advises operators, suppliers, regulators and tribal nations on regulatory strategy across US and international gaming markets.