Ninth Circuit Sides With Nevada in Landmark Prediction Markets Case Against Kalshi

A pivotal federal court decision has clarified that prediction markets—at least those offering sports event contracts—remain firmly under state jurisdiction, not the exclusive remit of federal commodities law. The United States Court of Appeals for the Ninth Circuit ruled on 28 August 2026 that Nevada's gaming regulators, not the Commodity Futures Trading Commission (CFTC), have authority over Kalshi's offerings, a development with broad consequences for operators and state regulators alike.

BLUF: Court Delivers Decisive Win to Nevada, Not Kalshi

The Ninth Circuit Court of Appeals’ unanimous decision is a clear victory for the Nevada Gaming Control Board in its ongoing dispute with Kalshi, the leading US prediction market platform. By holding that Kalshi’s sports contracts fall unequivocally under state gambling regulation rather than federal swaps oversight, the court set a new precedent that could reshape how prediction markets are licensed and taxed across the country. This ruling does not settle the national picture—another circuit court reached a different conclusion in New Jersey—but it sharply limits Kalshi’s argument that federal law should pre-empt local gaming rules.

Focus Keyword Section: Prediction Markets Regulation and Kalshi’s Position

Kalshi, currently valued at $22bn, has positioned itself as the principal player in US event contracts. The firm’s legal team maintains that its core offering—event-based contracts—qualify as swaps under the Commodity Exchange Act. Kalshi’s stance is that federal law, administered by the CFTC, should override Nevada’s and other states’ regulations that treat such contracts as sports betting. But Circuit Judge Ryan Nelson, writing for a unanimous panel, rejected this view:

“The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps.” — Judge Ryan Nelson

More than 90% of Kalshi’s 2025 trades and 95% of its revenue were tied to sports-related events, further cementing the view that these contracts mirror sportsbooks, not financial hedges. The court opinion also cited Kalshi’s own marketing—billing itself as “the first app for legal sports betting” in all 50 states—as undermining its case for swap status and federal pre-emption.

Contrasting Legal Approaches: State vs Federal

This latest ruling counters an earlier decision by the Third Circuit Court of Appeals, which found New Jersey could not prohibit prediction markets within its jurisdiction. With two circuits now offering divergent interpretations, operators and observers expect a likely escalation to the US Supreme Court. For now, Friday’s Ninth Circuit decision is the most prominent win for states seeking regulatory control over prediction markets.

44 states presently assert that prediction markets constitute gambling and therefore must obtain state licences and pay gaming taxes. Connecticut has already sued Kalshi, requesting a court injunction in August to halt its event contracts. New York launched a $36m lawsuit against Kalshi earlier in the same month, alleging operation of an illegal gambling business without New York State Gaming Commission approval. These parallel actions indicate an intensifying push from state regulators to enforce their frameworks on prediction market operators.

Industry Impact: Taxation, Licensing, and Operational Limits

For prediction market operators, the ruling means:

• States may continue to exercise licensing authority over platforms offering sports-related event contracts.
• State gaming taxes apply to revenues from these contracts.
• Operators cannot rely solely on CFTC designation or Commodity Exchange Act status to bypass state laws.

Mike Dreitzer, chair of the Nevada Gaming Control Board, remarked:

“This completely vindicates what we have been saying all along. This is sports betting and needs to be properly regulated by the state.”

While Kalshi responded by reiterating faith in CFTC rulemaking, it confirmed plans to seek further judicial review, which could set up a Supreme Court decision as the next chapter for US prediction market regulation.

Competitive Landscape: Kalshi, Polymarket, and Regulatory Risk

Kalshi’s legal struggle plays out alongside significant market moves from rivals. Polymarket, a blockchain-based platform founded by Shayne Coplan, was forced out of the US in 2022 after it was fined $1.4m for running an unregistered exchange. The platform re-entered in late 2025 by purchasing CFTC-licensed QCEX for $112m.

The sector is also drawing prominent investors and political figures. Former President Donald Trump appointed all three Ninth Circuit judges involved in this ruling. His son, Donald Trump Jr, acts as adviser to both Kalshi and Polymarket, with his firm 1789 Capital reportedly investing close to $300m of a $1bn round in Polymarket, aiming to value it at $21bn. In April, Polymarket reportedly closed another funding round at a $15bn valuation.

Future Outlook: Unanswered Questions and Market Next Steps

The divergent circuit court rulings leave unresolved whether the CFTC—or individual states—will ultimately govern the classification and operation of prediction markets nationwide. Until the US Supreme Court takes up the issue, operators must meet the strictest obligations in each active market and prepare for further litigation and enforcement—especially regarding high-turnover sports event contracts. States not only demand licensing but also expect platforms to pay full gaming tax rates, exposing operators to further scrutiny if they continue to position event contracts outside sports betting regulation.

Market participants should pay close attention to forthcoming CFTC clarifications, as well as upcoming lawsuits, for signals on long-term viability across US jurisdictions. The interplay between federal and state rules will remain unsettled until definitive guidance emerges—either legislatively or from the Supreme Court.