Meta description: Ninth Circuit allowed Nevada gaming enforcement against Kalshi sports contracts, splitting with the Third Circuit on CEA preemption.
Tags: Kalshi, CFTC, Nevada Gaming Control Board, Ninth Circuit, Third Circuit, sports event contracts
market_platform: Kalshi
category: Regulation
The Ninth Circuit on August 28 affirmed the dissolution of a preliminary injunction that had blocked Nevada from enforcing gaming laws against KalshiEX’s sports event contracts. The ruling in KalshiEX, LLC v. Assad, No. 25-7516, conflicts with the Third Circuit’s April 6 decision in KalshiEX LLC v. Flaherty, No. 25-1922, which upheld an injunction against New Jersey enforcement.
What did the Ninth Circuit decide about Kalshi’s sports contracts?
The Ninth Circuit held that Kalshi had not shown a likelihood that the Commodity Exchange Act preempts Nevada gaming regulation as applied to Kalshi’s sports-related event contracts. The panel affirmed in part U.S. District Judge Andrew P. Gordon’s order dissolving a preliminary injunction in the District of Nevada case, No. 2:25-cv-00575-APG-BNW, and remanded the portion of the case involving election contracts.
Writing for the panel, Circuit Judge Ryan D. Nelson said the Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps traded or executed on a designated contract market, but rejected Kalshi’s broader reading of what counts as a swap in this setting. The Ninth Circuit opinion said Kalshi’s sports event contracts were not swaps under the best reading of the statute because they were sports bets.
The panel also rejected Kalshi’s express preemption, conflict preemption and field preemption arguments. On conflict preemption, the court said Kalshi had not shown that complying with Nevada law would jeopardize its status as a CFTC-regulated designated contract market. On field preemption, the panel agreed that the Commodity Exchange Act preempts state regulation of futures trading, but said courts should not define the preempted field too broadly.
The Ninth Circuit’s opinion also relied on CFTC regulation 17 C.F.R. § 40.11, which bars certain event contracts that involve, relate to or reference gaming. Judge Kenneth K. Lee, concurring, wrote that one statutory provision gave him pause because it appears to give the CFTC discretion over whether to ban gaming contracts, but said that question did not have to be resolved because the existing CFTC regulation currently bars gaming contracts.
How does that conflict with the Third Circuit’s Kalshi ruling?
The Third Circuit reached the opposite preliminary-injunction result on April 6 in KalshiEX LLC v. Flaherty. Judge David J. Porter, joined by Chief Judge Michael A. Chagares, affirmed a District of New Jersey order that blocked New Jersey officials from enforcing state gambling law against Kalshi’s sports-related event contracts while the case proceeds.
The Third Circuit held that Kalshi had shown a reasonable chance of success on its argument that the Commodity Exchange Act preempts New Jersey’s enforcement effort. The court treated sports-related event contracts traded on a CFTC-licensed designated contract market as swaps within the CFTC’s exclusive jurisdiction, and found both field and conflict preemption supported the injunction.
Senior Judge Jane Richards Roth dissented in the Third Circuit case. She argued that Congress had not displaced the states’ historic authority over gambling and that New Jersey should not be barred from enforcing its gambling laws against the sports contracts at issue. The Ninth Circuit’s reasoning tracks that federalism concern more closely than the Third Circuit majority’s approach.
The result is a direct appellate split over the preemption question at the center of Kalshi’s sports-contract litigation. In New Jersey, Kalshi preserved a preliminary injunction against state enforcement. In Nevada, the Ninth Circuit allowed state gaming regulators to proceed against sports-related event contracts while sending election-contract issues back to the district court.
What does the ruling mean for the CFTC’s position?
The Ninth Circuit ruling cuts against the CFTC’s litigation position that the Commodity Exchange Act gives it exclusive authority over federally regulated event contracts listed on designated contract markets. The CFTC has taken that position in lawsuits and amicus filings as states have tried to apply gambling laws to prediction-market operators.
In a May 19 press release, the CFTC said it had sued Minnesota to block a state law that would make operating or assisting in the operation of a prediction market a criminal felony. The agency said it had also filed lawsuits against Connecticut, Illinois and New York, and filed amicus briefs in the Sixth Circuit, the Ninth Circuit and the Massachusetts Supreme Judicial Court.
The CFTC’s state-litigation campaign broadened after that. CBS News reported on June 24 that, including Kentucky, the agency had initiated legal actions against nine states over prediction-market enforcement: Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin.
The Ninth Circuit’s decision does not resolve those cases. It does give states a published appellate decision rejecting Kalshi’s argument that federal commodities law categorically blocks state gaming enforcement against sports event contracts. That matters because state regulators and gaming interests have argued that sports-outcome contracts look like sports betting regardless of their listing venue.
What is at stake in the CFTC’s event-contract rulemaking?
The CFTC’s June 12 proposed rule, Prediction Markets; Public Interest Determinations, 91 FR 35806, would amend Part 40 rules governing event-contract derivatives. The Federal Register notice says the proposal would further specify which event contracts may be found contrary to the public interest and therefore barred from listing or clearing through a CFTC-registered entity.
The proposal also would define “gaming” and address when event contracts “involve” an underlying activity. Comments were due July 27, according to the Federal Register notice. The notice spans pages 35806 through 35871 and follows an earlier advance notice of proposed rulemaking whose comment period closed April 30.
That rulemaking sits at the center of the legal fight because the CFTC is trying to define national standards for event contracts at the same time states are asserting their own gambling-law authority. If the Ninth Circuit’s view prevails in later proceedings, CFTC registration would not by itself prevent state gaming regulators from enforcing state law against sports-outcome contracts.
The major-questions doctrine is also part of the Ninth Circuit’s analysis. The panel said Kalshi’s broad interpretation of the swap definition would raise concerns under that doctrine, which requires clear congressional authorization when an agency claims authority over questions of major economic and political significance. The court did not need a separate holding on that issue, but its discussion gives state regulators another line of argument.
Which cases are now shaping the prediction-market fight?
The two appellate decisions now frame the industry’s central legal split. In the Third Circuit, Flaherty favors Kalshi’s preemption theory at the preliminary-injunction stage. In the Ninth Circuit, Assad rejects that theory for sports-related event contracts and allows Nevada’s gaming regulators to enforce state law while the case continues.
The state cases cited by the CFTC show how quickly the fight has moved beyond one venue. The agency’s May 19 release named CFTC lawsuits against Minnesota, Connecticut, Illinois and New York, plus amicus filings in the Sixth Circuit, the Ninth Circuit and the Massachusetts Supreme Judicial Court. CBS News later reported that the CFTC’s legal actions covered nine states when Kentucky was included.
Polymarket adds a separate regulatory reference point. In a Jan. 3, 2022 order, the CFTC said Blockratize Inc., doing business as Polymarket.com, operated an unregistered event-contract market and ordered a $1.4 million civil monetary penalty. That enforcement action is distinct from the Kalshi cases, but it remains part of the CFTC’s broader history with event-contract platforms.
The cases are no longer only about one company’s sports markets. They now test how far federal commodities law reaches into products that states have historically treated as gambling, and how much room remains for state gaming boards when contracts are listed by a CFTC-regulated exchange.
What is the next milestone?
Kalshi can seek further review in the Ninth Circuit or ask the Supreme Court to take up the split between Assad and Flaherty. The immediate legal posture is narrower than a final ruling on the merits: both appellate cases concern preliminary injunctions. But the disagreement is now explicit, with one federal appeals court preserving an injunction against state enforcement and another allowing Nevada enforcement against sports-related contracts to proceed.
On the agency side, the next major step is CFTC action on the Part 40 event-contract proposal after the July 27 comment deadline. Any final rule will land against an unsettled judicial backdrop, with state regulators, exchanges, gaming operators and market participants watching whether the split moves to the Supreme Court or develops further in the lower courts.
