Sports Bets on Kalshi Are Gambling, Not Swaps, Court Rules
In a significant blow to prediction markets, the US Court of Appeals for the 9th Circuit ruled that Kalshi's sports-event contracts are gambling, not swaps, and thus subject to state regulation. The decision, which conflicts with a 3rd Circuit ruling, intensifies the legal battle over whether the CFTC has exclusive authority over such contracts. As the Trump administration supports prediction markets, this ruling could reshape the landscape for platforms like Kalshi, Crypto.com, and Robinhood.
The Ruling
A three-judge panel of the 9th Circuit unanimously found that Nevada can enforce its gaming laws against Kalshi's sports bets. Judge Ryan Nelson wrote that 'placing sports bets, even when called by another name, is still gambling,' rejecting Kalshi's argument that its contracts are swaps under the Commodity Exchange Act. The court emphasized that CFTC regulations currently prohibit gaming contracts on prediction markets, despite Kalshi's self-certification and listing of such contracts.
Why It Matters
This ruling creates a circuit split with the 3rd Circuit, which had sided with Kalshi in a similar case. The conflict increases the likelihood that the Supreme Court will decide the issue. If upheld, the decision could force prediction markets to comply with state gambling laws, potentially limiting their operations in states like Nevada. It also challenges the CFTC's stance that it has exclusive jurisdiction, as the agency has been suing states to prevent regulation.
What's Next
The 9th Circuit remanded the case to the district court to determine whether Kalshi's election contracts also qualify as swaps. Meanwhile, the CFTC has proposed a rule that would permit sports betting on designated contract markets, which could override the current prohibition. The outcome of this regulatory process and potential Supreme Court review will be pivotal for the future of prediction markets.
Key Takeaways
- 9th Circuit: sports bets on Kalshi are gambling, not swaps, so Nevada can regulate them.
- Ruling conflicts with 3rd Circuit, raising chances of Supreme Court review.
- CFTC regulations currently prohibit gaming contracts, but a proposal could change that.
- Election contracts on Kalshi face separate legal scrutiny on remand.
Source: Ars Technica • 🇺🇸 San Francisco
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