Ninth Circuit Court Rejects Kalshi's Challenge to Sports Betting Rules

Ninth Circuit rejects Kalshi's federal preemption claim on sports contracts

Judge Ryan Nelson opened his opinion with Shakespeare. That is not where the legal problem ends.

In a unanimous three-judge decision, the Ninth Circuit held that Kalshi's sports event contracts are sports gambling under Nevada law, and that the Commodity Exchange Act likely does not preempt Nevada's authority to regulate them. Circuit Judge Nelson wrote that construing a contract on the Las Vegas Raiders to win by 7.5 points as something other than a sports bet was, in his word, disingenuous. The court vacated the injunction that had been limiting Nevada's Gaming Control Board from acting against Kalshi's platform.

The preemption question is where the legal weight actually sits. Kalshi's position has been that its contracts are federally regulated swaps under the CEA, placing them beyond the reach of state gaming commissions. The Ninth Circuit disagreed, and disagreed unanimously. The panel's finding was not that the CFTC lacks jurisdiction over swaps generally — it does not disturb that — but that Kalshi's sports event products do not qualify for that classification in the first place. If the instrument is not a swap, the federal preemption argument never gets off the ground.

That holding creates a direct split with the Third Circuit, which has reached a different conclusion on the same underlying question. A circuit split of this kind is not a procedural inconvenience. It is, in practice, the standard mechanism by which a case reaches Supreme Court review. Two federal courts of appeals interpreting the same statutory framework in opposite directions cannot both be right, and the Supreme Court exists partly to resolve exactly that situation.

The CFTC has been consistent in asserting exclusive jurisdiction. Chair Michael Selig has characterized state enforcement actions as attempts to nullify federal law. That position now faces a unanimous appellate panel that has read the Commodity Exchange Act differently — and has done so not on a procedural ground but on the merits of what these contracts actually are. Nevada Gaming Control Board Chair Mike Dreitzer called the ruling a complete vindication of the state's position.

I think the consensus is treating the preemption question as closer than the Ninth Circuit's reasoning supports. Nelson's statutory analysis is not equivocal. He found that the plain substance of these contracts — a financial stake tied to the outcome of a sporting event, indistinguishable from what a licensed sportsbook offers — falls within what Nevada's gaming laws were written to govern. The CEA's swap definition was not drafted with this product in mind, and the court read that gap against Kalshi. The Third Circuit read the same gap differently. One of those readings is going to be wrong, and the Supreme Court will have to say which.

The standard the Court will apply is whether the CEA's swap definition, read in light of Dodd-Frank's amendments and the CFTC's implementing regulations, preempts state laws that regulate the same economic activity under a different statutory label. That is a question about the reach of federal commodity regulation, not about Kalshi specifically. The answer will govern every event contract platform operating in every state with an active gaming commission.