A federal appeals court ruled that sports-related prediction market contracts are gambling, not federally regulated financial instruments, handing states a major win and setting the stage for a likely Supreme Court battle.
The Ninth Circuit Court of Appeals rejected bids by Kalshi, Crypto.com, and Robinhood to block the Nevada Gaming Control Board from shutting down their sports-related event contract offerings in the state. The court's core finding was blunt: these products are sports bets, not swaps governed by federal commodity law. CNBC reported that the ruling directly contradicts a Third Circuit decision from early April 2026, which held that only the Commodity Futures Trading Commission has jurisdiction over such contracts.
That contradiction, two federal appellate courts reaching opposite conclusions on the same legal question, all but guarantees the issue will land before the Supreme Court. Joshua Mitts, a professor at Columbia Law School, put it plainly:
"This is a classic circuit split. Ultimately, this is the kind of legal controversy or legal difference of opinion which will make its way to the Supreme Court."
Robinhood has already said it plans to appeal. Kalshi and Crypto.com did not respond to requests for comment.
Alcinia Whiters, deputy communications director for the Nevada Attorney General's office, framed the decision as vindication for state regulators who have argued all along that prediction market platforms were dressing up sports bets in financial jargon to dodge state law:
"Kalshi sought to sidestep Nevada's gaming laws by claiming its sports wagering products were federally regulated financial instruments beyond the reach of state regulators. The Ninth Circuit rejected that argument and made clear what we have maintained from the beginning: sports betting does not become something else simply because a company calls it an 'event contract'... Our office is proud to have defended Nevada's authority."
Forty-four states have made the same argument: that sports-related event contracts offered by prediction market platforms are, functionally, sports betting and should be regulated as such. The platforms and the CFTC disagree. The federal regulator has gone so far as to sue nine states to defend its claimed exclusive right to oversee these markets.
The legal fight has drawn in major state attorneys general, with lawsuits and regulatory actions piling up across the country. Nevada's case is now the highest-profile state victory on the question.
The CFTC did not take the ruling quietly. A spokesperson told CNBC that the Ninth Circuit got it wrong, and that federal law leaves almost no room for carving sports contracts out of the agency's jurisdiction:
"A derivative contract structured as a swap is a swap regardless of the underlying subject matter, the only exceptions in statute are onions and movie box office receipts."
The spokesperson went further, accusing the court of freelancing beyond the text of the Commodity Exchange Act:
"The Ninth Circuit erred today when it invented a new and atextual exception to the CEA."
That is a sharp accusation from a federal agency, essentially saying the appeals court rewrote the statute. It also signals the CFTC is unlikely to let the ruling stand without pushing for Supreme Court review, whether through its own channels or by backing the platforms' appeals.
Robinhood, for its part, insisted its offerings are legitimate. A spokesperson said every eligible customer "should have access to these markets, which are federally regulated by the CFTC and offered through our CFTC-registered Futures Commission Merchant." That framing, emphasizing the federal registration, is exactly the argument the Ninth Circuit rejected.
Wall Street read the ruling as good news for traditional online sportsbooks. DraftKings shares rose roughly 7 percent on the day, and Flutter Entertainment, the parent company of FanDuel, climbed more than 6 percent. Both companies have been working to launch their own prediction market exchanges, and a ruling that keeps event contracts under state gambling frameworks could give licensed sportsbooks a structural advantage over upstart platforms like Kalshi.
The prediction market industry has faced mounting pressure from multiple directions. Insider trading scandals have forced platforms to tighten their own compliance, and major financial institutions have started restricting employee participation in these markets.
State-level legal challenges have also multiplied. Courts in Washington state and Minnesota have weighed in on whether prediction market platforms can operate under state gambling statutes. A federal judge blocked Minnesota's prediction market ban earlier this year, siding with Kalshi and the CFTC, but the Ninth Circuit's ruling now cuts in the opposite direction, reinforcing the legal uncertainty hanging over the entire industry.
The legal question at the center of this fight is straightforward, even if the answer is not: When a company offers a contract that pays out based on the outcome of a sporting event, is that a federally regulated swap or a state-regulated sports bet?
The Third Circuit said swap. The Ninth Circuit said bet. Both courts interpreted the same federal statute, the Commodity Exchange Act, and reached opposite conclusions. That is the textbook definition of a circuit split, and the Supreme Court exists in large part to resolve exactly these conflicts.
The stakes go well beyond Nevada. If the Supreme Court sides with the Third Circuit and the CFTC, prediction market platforms could operate nationwide under federal oversight, effectively preempting state gambling regulators. If the Court sides with the Ninth Circuit, states would retain authority to regulate, or ban, sports-related event contracts as gambling, potentially fragmenting the market into a state-by-state patchwork.
Meanwhile, state courts continue to issue their own rulings, and the CFTC continues suing states to assert its turf. The result is a regulatory landscape where platforms, investors, and consumers have no clear answer about what the rules are or who sets them.
Even Wall Street's biggest firms have started pulling back, restricting employee participation in prediction markets as the legal ground shifts beneath them.
The Ninth Circuit's opinion quoted in the ruling put the core finding in plain terms: "The sports event contracts were not 'swaps' because they were sports bets." That one sentence captures the entire dispute, and the reason this fight is heading to the highest court in the country.
When a company rebrands a sports bet as a "derivative" and demands that only Washington regulate it, states have every right to push back. The Supreme Court should settle this, and soon.