Federal appeals court rules states can regulate prediction markets as gambling
A federal appeals court ruled Friday that states can regulate prediction markets as gambling. The Ninth Circuit decision rejects the argument that sports-linked event contracts are federally regulated swaps under commodities law. Instead, the court placed them under state gambling oversight. The ruling deals a major blow to the prediction markets industry, which had operated under federal regulatory frameworks. Kalshi, a CFTC-registered platform, faces the most immediate impact.
Kalshi now faces active legal threats or blocks in at least four states: Nevada, Michigan, Washington, and Connecticut. The ruling shatters the preemption defense that let CFTC-registered platforms scale nationally. Rivals Polymarket and Novig face identical exposure because the Ninth Circuit's reasoning reaches any sports-linked contract.
Platform leaders must now choose between costly state-by-state geofencing or defending parallel lawsuits that multiply legal spend. Traders hold positions whose validity depends on geography, not federal designation. The circuit split with the Third Circuit could eventually reach the Supreme Court. That timeline stretches years. Each new state filing emboldens the next attorney general. A second circuit loss would trigger a domino of copycat actions.
The Ninth Circuit joins five other state or federal courts that have now rejected the federal preemption defense across Kalshi, Polymarket, and Novig, stripping the legal shield that once justified national platform expansion.