The Ninth Circuit Court of Appeals has ruled that KalshiEX failed to show that federal derivatives law likely preempts Nevada’s gaming regulations over its sports event contracts.
The case, KalshiEX, LLC v. Assad, centred on whether the Commodity Exchange Act gives federal regulators exclusive authority over sports-related prediction market contracts listed as swaps.
The court concluded that Kalshi’s sports contracts are likely not swaps, allowing Nevada to resume enforcement of its gaming laws against the platform’s sports event products.
A central question was whether the outcome of a sporting event qualifies as an “event” under the statutory definition, with the court reasoning that a game’s winner or point spread is an outcome, not the event itself.
The court was blunt in its assessment, stating that “the substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps.”
Kalshi argued that sports outcomes carry real economic consequences for broadcasters, advertisers, sponsors, and local communities, giving the contracts legitimate financial characteristics of a swap.
The court rejected that argument, warning that accepting such a broad theory would stretch the definition of swap so far as to become “so broad as to be meaningless.”
The ruling also leaned on CFTC Rule 40.11, which prohibits registered entities from listing contracts involving or referencing gaming, concluding Kalshi’s products relate to gaming “under any reasonable interpretation.”
Judge Kenneth Kiyul Lee wrote a concurring opinion noting that a provision allowing the CFTC to determine gaming contracts are contrary to the public interest “gives me pause,” and could suggest some sports contracts might qualify as swaps.
However, Judge Lee concluded that CFTC Rule 40.11 currently “bars gaming contracts” regardless of whether the CEA itself categorically prohibits them, making the broader question unnecessary to resolve at this stage.
The Ninth Circuit’s decision also creates a direct circuit split with the Third Circuit, which previously reached different conclusions on whether state gaming laws are preempted in this context.
That split substantially raises the prospect of Supreme Court intervention, with New Jersey having until 3 September 2026 to petition the court for review of the Third Circuit’s ruling.
Both circuit decisions arose from preliminary injunction proceedings rather than final merits judgments, meaning the Supreme Court may choose to wait for a more fully developed case before weighing in.
The court notably found it implausible that Congress quietly handed the CFTC nationwide authority over sports gambling through Dodd-Frank’s broad language, saying Congress did not “take a wrecking ball to all sports gambling regulations built up over decades.”
The ruling carries significant implications for the fast-growing prediction markets industry, which has been pushing to expand sports-related financial contracts under federal regulatory frameworks.