Ninth Circuit Rules Against Prediction Markets

The Ninth Circuit Court of Appeals has ruled that sports-related event contracts offered by certain prediction-market platforms are not swaps under the Commodity Exchange Act but instead constitute sports bets. The ruling rejected requests for injunctive relief from Kalshi and Crypto.com and denied a similar request from Robinhood (HOOD), clearing the way for the Nevada Gaming Control Board to enforce state gambling laws against those offerings.

In its opinion, the court concluded that the sports event contracts at issue did not fall within the federal definition of swaps and therefore were not subject to exclusive federal derivatives regulation. By characterizing the products as sports bets, the court aligned them with traditional gambling activities that states have long regulated through their own gaming frameworks.

Prediction-market platforms and the Commodity Futures Trading Commission (CFTC) have argued that event contracts, including those tied to sports outcomes, are a type of derivative that should be regulated at the federal level. They contend that such contracts fall under the CFTC’s authority as swaps, placing them within the broader derivatives regulatory regime.

Many states have taken the opposite view, asserting that sports event contracts are simply another form of gambling that falls squarely within state jurisdiction. The Nevada Gaming Control Board has pursued that position, seeking to apply Nevada’s gaming rules to platforms offering sports-related event contracts to customers.

The Ninth Circuit’s conclusion directly contradicts a Third Circuit Court of Appeals ruling from April that found event contracts fit within the definition of swaps and are therefore regulated by the CFTC. That earlier decision treated such products as federal derivatives rather than state-regulated gambling.

This divergence between two federal appellate courts creates a circuit split on the core question of whether event contracts are swaps or sports bets. Legal experts have characterized the disagreement as a classic circuit split, a type of conflict that often prompts the U.S. Supreme Court to step in to resolve differing interpretations of federal law.

The CFTC has pursued litigation against multiple states to defend what it views as its sole authority to make rules for prediction markets and event contracts. The agency’s stance is that all such contracts fall within its derivatives jurisdiction, putting it at odds with states that classify sports offerings as gambling products.

Financial markets reacted quickly to the Ninth Circuit’s ruling. Shares of DraftKings (DKNG) rose about 7%, while Flutter Entertainment’s (FLUT) stock gained more than 6% after the decision was announced. Companies and regulators involved in the dispute did not immediately provide public comments, and the legal conflict over how prediction markets should be regulated is expected to continue through further appeals.