The United States Court of Appeals for the Ninth Circuit has ruled that sports event contracts offered on prediction market exchanges are not “swaps” under the Commodity Exchange Act.
The August 28, 2026 decision in KalshiEx, LLC v. Assad, No. 25-7516, affirms the authority of state gambling regulators to oversee these products under their own state laws.
The three-judge panel rejected arguments from KalshiEx LLC and the Commodity Futures Trading Commission that sports event contracts qualify as swaps or futures in excluded commodities under the CEA.
The ruling creates a direct circuit split with the Third Circuit’s April 2026 decision in KalshiEx, LLC v. Flaherty, 172 F.4th 220, which reached the opposite conclusion on the same core question.
That deepening legal conflict, combined with pending appeals across the country, makes Supreme Court review of the issue increasingly likely in the near term.
Kalshi operates a CFTC-licensed designated contract market offering binary event contracts that pay out based on real-world outcomes, including sporting events.
Nevada’s Gaming Control Board sent Kalshi a cease-and-desist letter in March 2025, prompting the company to seek a federal injunction arguing its contracts were subject to exclusive CFTC jurisdiction.
The U.S. District Court for the District of Nevada ultimately ruled against Kalshi, finding sports event contracts are not swaps and that the CEA does not preempt state gaming laws.
The Ninth Circuit’s central holding is that sports event contracts fail the statutory definition of a swap under the CEA for multiple independent reasons, including that an “event” is not the same as the “outcome” of an event.
The court also found there is no meaningful distinction between sports bets and sports event contracts, and that Kalshi’s interpretation would render virtually any commercial transaction a swap.
Judge Kenneth K. Lee filed a concurrence addressing the scope of the CFTC’s Special Rule authority under 7 U.S.C. § 7a-2(c)(5)(C), a provision enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Judge Lee’s concurrence makes clear the Special Rule operates as a reservation of authority, empowering the CFTC to reject categories of contracts that qualify as swaps rather than expanding the definition to cover products that do not.
The Ninth Circuit’s decision diverges sharply from the Third Circuit’s approach on several key interpretive questions, most notably on the meaning of the word “event” in the statutory swap definition.
The Third Circuit held that “event” could encompass the outcome of a sporting contest because such outcomes can be connected to financial consequences for sponsors, broadcasters, and local communities.
The Ninth Circuit flatly rejected that reasoning, holding that an event such as a game being played is fundamentally distinct from its outcome such as which team wins.
The Ninth Circuit also warned that the Third Circuit’s broad reading would produce absurd results, potentially sweeping bingo games and ping-pong tournaments within federal swap regulation.
New Jersey has already indicated its intent to petition the Supreme Court for review of the Flaherty decision, with a certiorari deadline extended to early September 2026 after the state filed a motion for extension on June 30, 2026.
Kalshi has similarly stated it intends to seek further review of the Assad decision, and the same fundamental questions are being litigated across the Second, Fourth, Sixth, and Ninth Circuits.
For state gaming regulators and the regulated gaming industry, the Ninth Circuit ruling represents a significant victory, preserving their decades-long authority to oversee wagering on sporting events.
The decision is binding across the Ninth Circuit, which covers California, Nevada, Arizona, Oregon, Washington, and several other key jurisdictions, and prediction market operators now face a fragmented regulatory landscape depending on which circuit they operate within.