In a decision that sends shockwaves through the burgeoning world of digital forecasting, a federal appeals court ruled Friday that states possess the authority to regulate prediction markets under existing gambling laws. The unanimous 3-0 decision from the Ninth Circuit Court of Appeals represents a significant setback for platforms like Kalshi, which have long argued that their operations are sophisticated financial exchanges rather than simple betting parlors. By siding with regulators, the court has essentially stripped away the shield these companies used to avoid state gaming taxes and oversight.
The legal battle began in Nevada, where officials sought to shut down Kalshi’s offerings. While these sites often obtain licenses from the Commodity Futures Trading Commission to trade event contracts as derivatives, forty four states have countered that calling a bet on a sporting event a swap does not change its fundamental nature. The panel of three Trump appointed judges found this distinction unconvincing, even describing it as disingenuous for Kalshi to claim its products were not sports betting while simultaneously using such language in its own marketing materials.
Nevada officials celebrated the victory as a win for the integrity of the traditional gaming industry. Governor Joe Lombardo and members of the Nevada Gaming Control Board expressed relief that the ruling vindicates their longstanding position that these platforms are simply unregulated sportsbooks. However, Kalshi has already signaled its intent to fight back, maintaining that current federal regulations do not prohibit their business model and stating that they will seek further review of the decision.
Because another appeals court recently sided with prediction markets in a similar dispute involving New Jersey, this latest ruling creates what lawyers call a circuit split. This contradiction between different regional courts makes it highly likely that the matter will eventually be decided by the Supreme Court. Until then, the Ninth Circuit’s ruling establishes a powerful precedent for several western states looking to clamp down on sites that currently handle billions of dollars in weekly trading volume.