Court Ruling on Prediction Markets Sets Stage for Supreme Court Battle
A federal appeals court ruled on August 28, 2026, that sports event contracts offered by prediction market platforms are wagers subject to state gaming laws rather than federally regulated derivatives, setting up a high-stakes legal battle before the U.S. Supreme Court. The 3-0 decision by the 9th U.S. Circuit Court of Appeals in San Francisco rejected efforts by platforms like Kalshi, Crypto.com, and Robinhood to block the Nevada Gaming Control Board from regulating sports prediction markets within the state, according to court records and reports from Reuters and CNBC.
Ninth Circuit Decision and State Licensing Requirements
The 9th Circuit panel concluded that federal law under the Commodity Exchange Act does not preempt Nevada from requiring a gaming license for prediction market platforms offering sports event contracts. According to reporting by Reuters, Circuit Judge Ryan Nelson wrote in the ruling that Kalshi’s contracts bear the core hallmarks of sports betting, which he described as a quintessential form of gambling outside the regulatory purview of the Commodity Futures Trading Commission. The court noted that Kalshi had previously advertised itself as the first app for legal sports betting across all 50 U.S. states, making it difficult to claim that Congress intended to upend decades of state gambling oversight through general financial reform legislation.
Nevada Gaming Control Board Chairman Mike Dreitzer welcomed the outcome in an official release, stating that the decision completely vindicates the state’s position that sports betting must be properly regulated at the state level, as reported by PYMNTS. Nicole Saharsky, a lawyer with Mayer Brown who represented the Nevada board, emphasized that the court confirmed states retain traditional authority over sports wagering, according to Reuters.
Federal Regulator Response and Divergent Circuit Rulings
The Commodity Futures Trading Commission maintained its stance that it holds exclusive jurisdiction over prediction market platforms as national swaps under the Dodd-Frank financial reforms. In an emailed statement to PYMNTS, CFTC spokesperson Zach Fulton argued that the 9th Circuit incorrectly ruled on swaps and created an atextual exception to the Commodity Exchange Act. Fulton asserted that a derivative contract structured as a swap remains a swap regardless of its underlying subject matter, with only onions and movie box office receipts exempted by statute.
Friday’s ruling directly contradicts an earlier decision issued in April by the 3rd U.S. Circuit Court of Appeals in Philadelphia, which held that New Jersey could not regulate Kalshi’s platform because federal law preempts state oversight of federally licensed exchanges. Legal experts cited by CNBC, including Columbia Law School professor Joshua Mitts, noted that this direct disagreement between federal appeals courts establishes a classic circuit split that virtually guarantees a review by the U.S. Supreme Court.
Prediction market platforms expressed disappointment with the 9th Circuit’s findings and signaled plans for further legal challenges. Kalshi spokesperson Dani Lever told PYMNTS in an emailed statement that the platform will seek further review, pointing out that the 9th Circuit agreed with the 3rd Circuit on the fundamental point that federal law prevents states from regulating trading on federally licensed exchanges. A Robinhood spokesperson also told PYMNTS that the firm respectfully disagrees with the decision and intends to pursue an appeal to ensure eligible customers maintain access to federally regulated markets.
Financial markets reacted swiftly to the judicial development. According to Seeking Alpha and CNBC, shares of major online sportsbook operators DraftKings and Flutter Entertainment rose 7.0% and 7.4% respectively in late Friday trading. Analysts noted that online sportsbooks had faced heavy investor pressure over the past year due to concerns that prediction markets might disrupt traditional sports betting operations.