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A federal appeals court has ruled that states have the authority to regulate prediction markets as gambling, marking a major development for the fast-growing industry. The decision, handed down by the Ninth Circuit Court of Appeals, allows states to enforce their own gambling laws against platforms like Kalshi, which offer contracts on the outcome of future events. The case originated in Nevada, where state regulators attempted to shut down Kalshi’s operations, arguing that its prediction contracts were essentially unlicensed gambling.
The ruling, delivered by a panel of three judges appointed by President Donald Trump, is the most significant victory so far for states seeking to exert control over prediction markets. The Ninth Circuit’s decision directly conflicts with a recent Third Circuit opinion, which found that federally regulated prediction markets fall under the exclusive oversight of the Commodity Futures Trading Commission (CFTC) and are shielded from state intervention in certain jurisdictions. This split between federal courts dramatically increases the likelihood that the Supreme Court will ultimately decide the issue.
The legal landscape for prediction markets remains unsettled across the country. Courts in Tennessee, Massachusetts, and other states have reached different conclusions about whether prediction market contracts are swaps regulated by federal law or sports bets subject to state gambling laws. The CFTC has argued that event contracts offered on federally registered exchanges should be considered commodity derivatives under the Commodity Exchange Act, putting them in federal hands. However, many states maintain that their own gambling regulations take precedence, especially when it comes to sports-related contracts.
Despite the federal oversight, some states, like Nevada and Arizona, have actively pursued enforcement actions and even criminal charges against prediction market operators. Prediction markets remain available in most states, but ongoing lawsuits and regulatory battles have led to uncertainty for businesses and users alike. In Nevada, prediction markets are currently not live due to the court’s injunction, while in other states, platforms like Kalshi and Polymarket continue to operate as legal challenges play out.
Legal experts agree that the fractured court decisions and active litigation in several circuit courts mean the Supreme Court may soon step in to resolve whether federal law preempts state gambling regulations for prediction markets. Until then, both the industry and its users face a complex patchwork of rules that can change as new rulings are issued.