Federal Court Backs Nevada in Dispute Over Predictive Markets with Kalshi

Kalshi faced a significant setback after the Ninth Circuit Court of Appeals ruled in favor of Nevada in the dispute over the regulation of predictive markets. The ruling, issued on Friday, August 28, asserts that the company did not prove that federal commodities law prevails over Nevada's state sports betting regulations. This judicial stance increases the likelihood that the future of predictive markets will be decided by the United States Supreme Court.

Legal Context: Kalshi, the CFTC and State Jurisdiction

Kalshi, with an estimated value of $22 billion, maintains that event contracts constitute 'swaps' under the Commodity Exchange Act, and therefore should be governed federally through the Commodity Futures Trading Commission (CFTC). However, Judge Ryan Nelson argued that the sports contracts offered by Kalshi represent a "classic form of gambling" that the CFTC does not currently regulate. The court emphasized that, although the platform refers to its products as "swaps", they are essentially sports bets subject to state regulation.

Distinction Between Contracts and Sports Bets

The court opinion highlights that over 90% of Kalshi's operations in 2025 and 95% of its revenue relate to contracts tied to sporting events. The court also cited Kalshi's self-promotion as "the first app for legal sports betting in all 50 states", undermining the distinction the company attempted to make between its contracts and traditional sportsbook bets.

"The essence of the sports event contracts offered on Kalshi's DCM is sports gambling, regardless of how Kalshi defines them," wrote Judge Nelson.

Regulatory and Business Reactions

Mike Dreitzer, chairman of the Nevada Gaming Control Board, celebrated the ruling, stating that it "vindicates" the state's position of considering Kalshi's contracts as sports betting subject to state regulation. In contrast, Kalshi expressed its disagreement and announced that it would seek further review, insisting that the CFTC's interpretation does not prohibit sports contracts and that the regulator is clarifying its stance.

Regulatory Expansion: Disputes in Other States and National Landscape

The Ninth Circuit ruling marks the biggest judicial victory for states seeking to regulate predictive markets. Currently, 44 states view such platforms as gambling, requiring licenses and the payment of local gambling taxes. At the end of August, Connecticut sued Kalshi seeking a court order to stop the offering of sports event contracts in its jurisdiction. Earlier that month, New York initiated a $36 million lawsuit against Kalshi for allegedly operating without a license from the New York State Gaming Commission.

Impact of the Decision on the Future of Predictive Markets in the U.S.

While the ruling strengthens state control over predictive markets, the recent decision by the Third Circuit Court of Appeals —which allows the operation of these markets in New Jersey— adds to the judicial discrepancies that could result in a Supreme Court review. Additionally, there are regulatory precedents for platforms like Polymarket, a company that exited the U.S. market in 2022 after receiving a $1.4 million fine for operating an unregistered exchange, but returned in 2025 after acquiring the CFTC-licensed exchange QCEX for $112 million.

Investment and Key Players in the Industry

Political and business interest also influences the sector. Judges Nelson, Kenneth Kiyul Lee, and Bridget Bade —appointed by Donald Trump— formed the deciding panel. Donald Trump is a well-known proponent of predictive markets and federal oversight by the CFTC. His son, Donald Trump Jr., advises both Kalshi and Polymarket. Moreover, Trump Jr.'s investment fund, 1789 Capital, plans to invest around $300 million in Polymarket as part of a funding round that would value the company at $21 billion.

Last April, Polymarket —a blockchain technology-based platform founded by Shayne Coplan— closed a funding round with a valuation of $15 billion.

The Ninth Circuit ruling consolidates state authority over betting on predictive market platforms and could define the future legal framework for all such operations nationwide. The sector will need to anticipate upcoming court rulings and coordination between federal and state regulators that will determine the scope and nature of the regulation to which these new products will be subjected.