A federal judge in Nevada ruled against prediction market platform Kalshi, stating that its sports-related event contracts fall under state gaming regulations rather than exclusive federal oversight. The decision dissolves a preliminary injunction and could impact other providers like Polymarket. Kalshi plans to appeal to the Ninth Circuit Court of Appeals.
Earlier this week, Judge Andrew Patrick Gordon of the District of Nevada ruled that Kalshi's event contracts tied to sports outcomes are not swaps under the Commodities Exchange Act, placing them outside the exclusive jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC). This means Nevada's Gaming Control Board and Gaming Commission can oversee these contracts as gaming activities.
Kalshi had sued Nevada regulators earlier this year, seeking an injunction to prevent enforcement actions against its sports outcome markets. The company argued that federal authority preempts state supervision for such derivatives trading on CFTC-registered exchanges. Initially, Kalshi secured a preliminary injunction, but the judge dissolved it in this ruling.
In his opinion, Judge Gordon wrote, "event contracts that turn on the outcomes of sporting events are not swaps and thus do not fall within the CFTC's exclusive jurisdiction." He further stated, "It is absurd to think that Congress intended for DCMs to turn into nationwide gambling venues on every topic under the sun to the exclusion of state regulation and with no comparable federal regulator without ever mentioning that was the goal when Congress added swaps to the CEA in 2010."
This follows Kalshi's successful 2023 lawsuit against the CFTC to launch political event contracts, where a federal court affirmed federal oversight a year later. Nevada regulators distinguished sports bets from commodities trading, asserting state authority over gaming.
Kalshi filed a notice of appeal to the Ninth Circuit and requested a stay. Nevada attorneys agreed to pause enforcement pending the appeal decision but criticized Kalshi, stating in a filing, "[Kalshi] has unreasonably refused to stop its unlawful activities in Nevada, even while Crypto.com and Robinhood have entered into agreements with State Defendants to avoid enforcement pending appeal."
TD Cowen policy analyst Jaret Seiberg noted in a client report that the issue may reach the Supreme Court due to diverging lower court rulings, potentially delaying resolution until 2027 or later. He suggested states hold the advantage given gambling's traditional state regulation and predicted a possible compromise allowing states to tax sports-tied contracts without ousting federally designated markets like Kalshi.