Third and Ninth Circuits split on sports contract classification

Third Circuit and Ninth Circuit split on whether sports contracts are swaps

Ned Lamont signed the cease-and-desist orders on a Tuesday. By Friday, Robinhood and Crypto.com had filed petitions at the Supreme Court. The speed is not coincidence — it is the logic of a legal position that has no viable middle ground.

The fracture in federal appeals court doctrine is now formal. The Third Circuit held in May that sports event contracts are swaps, instruments under exclusive CFTC jurisdiction. The Ninth Circuit held the opposite: these are sports wagers, and the Commodity Exchange Act does not reach them. Kalshi has asked the Ninth Circuit to rehear the case before an eleven-judge panel. Robinhood and Crypto.com have gone further, petitioning the Supreme Court directly. Both platforms have suspended sports contracts for Nevada residents while the litigation moves.

What makes this harder to price than it looks is that the Third Circuit and Ninth Circuit disagreed not on facts but on categorisation. The same contract, written the same way, resolves as a federally protected financial instrument in one circuit and an illegal sports bet in another. That is exactly the kind of split the Supreme Court exists to resolve, and it gives the cert petition considerably more traction than most.

The reporting treats the Connecticut enforcement action and the Supreme Court petition as separate stories running in parallel. They are not. Connecticut ordered nine platforms to halt sports contracts on the same week Robinhood and Crypto.com escalated to the highest court available, and Kalshi sought en banc review one circuit below. The state-level enforcement is accelerating precisely because the platforms have chosen litigation over compliance — which means states have every incentive to move before a federal ruling forecloses them.

The consensus read is that the Supreme Court will either deny cert or take the case and hand the industry a clean federal preemption win, because the CFTC's public support for the platforms signals executive branch alignment. That read is probably too clean. The CFTC's support matters at the agency level; it matters less when the statutory question is whether Congress, in passing the Commodity Exchange Act, silently displaced state gaming law across an industry that didn't exist in its current form when the Act was written. Courts have been reluctant to find implied preemption of state police powers without clear congressional statement, and the Ninth Circuit's unanimous panel found exactly that reluctance dispositive.

The Third Circuit majority got to its answer by classifying the contracts as swaps. The Ninth Circuit majority got to its answer by classifying them as wagers. The classification is doing all the work, and it is not obvious which classification a Supreme Court majority would adopt, or whether the current composition of the court would reach for the federal answer as readily as the industry's legal teams are assuming.

Connecticut's enforcement action against nine platforms simultaneously — including Coinbase, Gemini, Webull, and Underdog alongside the better-known names — is a signal worth reading carefully. A state that expects to lose at the Supreme Court does not build an enforcement record this aggressively. Lamont's office is constructing a factual record: underage users, self-excluded gamblers, collegiate sports contracts prohibited under state law. That record is not aimed at the Ninth Circuit. It is aimed at a future in which Congress has to decide whether to act, and at the political cost of being seen to have protected platforms that were taking bets from people on exclusion lists.