Ninth Circuit leaves Kalshi facing state enforcement on sports bets

Paul Clement filed seventy-eight pages with the Ninth Circuit arguing that a company operating under exclusive federal oversight cannot simultaneously be exposed to civil and criminal liability under state gambling law. The court needed no vote to disagree. The rehearing denial was unanimous, and no judge asked for full-court consideration — which is the procedural equivalent of the room deciding the question isn't close.

The underlying ruling stands: sports event contracts traded on Kalshi do not qualify as swaps under the Commodity Exchange Act, which means the federal derivatives framework Kalshi has built its entire regulatory argument around does not extend to protect those contracts from Nevada gaming regulators. The state can enforce. The injunction is gone.

What makes the Ninth Circuit decision more than a single loss is the architecture it leaves behind. Kalshi now has ninety days to petition the Supreme Court, and separately, its counsel has the option of coordinating with litigation still pending before the Third Circuit. That coordination strategy is worth watching carefully. If Kalshi can generate a circuit split — a live disagreement between the Third Circuit and what the Ninth has now affirmed — the Supreme Court becomes a more plausible venue. Without a split, the petition is a long shot with unfavorable odds in a court that selects fewer than two percent of cases presented to it.

The Second Circuit denial, issued a day before the Ninth Circuit acted, concerns different states and a different procedural posture, but the direction of travel is the same. Two circuits in two days declined to shield Kalshi from state enforcement. The company is simultaneously fighting Arkansas and facing subpoenas in New York. The legal front is not widening — it has widened.

Here is where I part company with the consensus read on this. Most of the analysis treats these rulings as an enforcement problem for Kalshi specifically. I think they are a structural problem for the prediction market category. The CEA preemption argument was the load-bearing wall. Kalshi's position in every state where it wants to offer sports event contracts rested on the proposition that federal designation as a contract market immunizes the product from state gambling classification. The Ninth Circuit has now said that proposition is wrong, at least in this circuit, at least for these contracts. That is not a Kalshi problem. That is a problem for anyone who built a product strategy on the same legal theory.

The CFTC issued a Notice of Proposed Rulemaking in October, which means the federal regulatory framework is actively in motion. What the courts are signaling, before those rules are final, is that federal rulemaking may not settle the state-level question regardless of what it says. A company can be fully compliant with CFTC guidance and still face enforcement in Nevada, New York, Connecticut, Arkansas, and wherever Texas and Georgia move next.