The US Court of Appeals for the Ninth Circuit ruled on Friday that Nevada has the authority to enforce its gambling laws against prediction market operator Kalshi. This ruling could pave the way for a Supreme Court review by the next NFL season. The decision concluded that sports event contracts on Kalshi’s platform should be considered “sports gambling” and are thus subject to Nevada’s gaming regulations, not federal oversight under the Commodity Exchange Act (CEA).
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Judicial Opinions and Industry Responses
The court’s opinion, penned by US Circuit Judge Ryan Nelson, compared Kalshi’s contracts to traditional sports bets, drawing parallels with wagers made at sportsbooks. Nelson highlighted, “To call a rose by any other name would smell as sweet,” emphasizing that terminology doesn’t change the nature of the contracts. Nevada Gaming Control Board Chair Mike Dreitzer praised the decision, stating, “This is sports betting and needs to be properly regulated by the state.”
The American Gaming Association (AGA) also supported the ruling, viewing it as a victory for consumer protections. AGA President Bill Miller stated the decision protects state-regulated gaming frameworks. In contrast, the Commodity Futures Trading Commission (CFTC) maintains that it has exclusive jurisdiction over these contracts. CFTC Chair Michael Selig, previously appearing on CNBC, criticized state efforts to limit prediction markets as undermining federal law.
History and Regulatory Background
Prediction markets, which allow participants to trade contracts on the outcomes of future events, have long straddled the line between financial instruments and gambling products. The Commodity Exchange Act has historically provided a regulatory framework for these markets when the underlying asset is considered to be a commodity. However, the line blurs when the contracts relate to sports events. The CFTC, established by Congress in 1974, has traditionally claimed jurisdiction over all futures and options markets, but sports betting has been its grey area. Meanwhile, Nevada, with its robust gaming industry, has a vested interest in ensuring that any form of sports betting falls under its purview to protect its economic interests.
The crux of the legal battle lies in whether these prediction market contracts are more akin to traditional futures contracts, which the CFTC regulates, or sports bets, which fall under state gambling laws. The Ninth Circuit’s decision marks a significant pivot in how these contracts might be regulated, potentially reshaping the landscape of prediction markets and their operational jurisdictions.
Implications of a Circuit Split
This ruling by the Ninth Circuit contrasts with a decision by the Third Circuit, which found that the CEA preempts state laws in New Jersey regarding similar event contracts. Such a split between circuit courts often leads the US Supreme Court to consider hearing a case. Still, the prediction market platform Polymarket reflects this uncertainty—trading on whether the Supreme Court takes up the case has seen major activity, with bets on a review jumping to 64% likelihood. New Jersey faces a September 3 deadline to decide on petitioning the Supreme Court for review.
A circuit split is a crucial factor in the legal process, as it highlights differing interpretations of federal law across various jurisdictions. This case, therefore, becomes a prime candidate for the Supreme Court to step in and establish a unified national standard. The decision could have broad implications for federal versus state regulatory authority over prediction markets nationwide, potentially altering how these platforms operate and are governed across different states.
Market Context and Economic Impacts
The prediction market industry has witnessed substantial growth, with platforms like Kalshi and Polymarket gaining traction. Kalshi, in particular, reported a trading volume exceeding $300 million over the past year, underscoring the sector’s financial rise. This growth mirrors the expansion seen in the broader online gambling and sports betting markets, which have surged following the 2018 Supreme Court decision to overturn the Professional and Amateur Sports Protection Act (PASPA), allowing states to legalize sports betting.
In this context, Nevada’s legal victory is significant. The state has long been a hub for gambling, generating over $14.8 billion in gaming revenue annually—a vital part of its economy. Ensuring regulation aligns with state laws helps protect this revenue stream and encourages responsible gambling practices that provide consumer protections and fair market conditions.
Political and Market Developments
Politically, the issue reached high-profile attention when Donald Trump Jr. addressed prediction markets at a Republican Attorneys General Association meeting. Criticizing state actions influenced by gambling lobbies, Trump Jr. argued for federal oversight over these markets. But this came as he joined Kalshi as a strategic advisor, receiving large shares that have since increased in value. Meanwhile, in the sports betting arena, the NCAA college football season has kicked off, generating large trading activity in prediction markets. Kalshi reported over $17.5 million in trading volume for college football championships. Ohio State and Notre Dame lead as favorites, with trading volumes surging as the season progresses.
Stakeholders in the gambling and prediction market industries are watching closely as legal and regulatory frameworks continue to evolve. The outcome of these legal battles could significantly impact how companies strategize and operate, influencing everything from market entry strategies to compliance costs.
What Happens Next?
As the legal and regulatory market for prediction markets remains in flux, stakeholders are closely monitoring developments. The potential Supreme Court decision could redefine the balance between state and federal oversight in this emerging market. The immediate next step: New Jersey’s decision on whether to seek Supreme Court intervention, due by September 3. If the Supreme Court takes up the case, a decision would likely arrive by mid-2024, potentially setting a precedent that either reinforces or challenges state authority over prediction markets.
This decision could impact the future regulation and operation of prediction markets across the country. For operators like Kalshi, the stakes are high; regulatory clarity could unlock new markets and investment opportunities but might also impose stricter compliance requirements. For players, the outcome will determine the accessibility and legality of betting on prediction markets across various states.
In conclusion, the Ninth Circuit’s ruling has set the stage for a potentially transformative moment in the regulation of prediction markets. The interplay between federal and state authorities, combined with the fast-paced growth of the market, ensures this remains a closely watched space. Whether a unified legal standard emerges will significantly influence the industry’s trajectory, shaping its economic, regulatory, and competitive dynamics for years to come.
Garry Sputnim is a seasoned journalist and storyteller with over a decade of experience in the trenches of global news. With a keen eye for uncovering stories that resonate, Alex has reported from over 30 countries, bringing light to untold narratives and the human faces behind the headlines. Specializing in investigative journalism, Garry has a knack for technology and social justice issues, weaving compelling narratives that bridge tech and humanity. Outside the newsroom, Garry is an avid rock climber and podcast host, exploring stories of resilience and innovation.
