Ninth Circuit Rules Kalshi Sports Contracts Are Not Swaps, Dealing Blow to CFTC Jurisdiction Claim

The Ninth Circuit Court of Appeals ruled this week that Kalshi's sports event contracts do not qualify as swaps under federal law, affirming the dissolution of an injunction the platform had sought to block Nevada from enforcing its sports betting regulations. The decision directly challenges the Commodity Futures Trading Commission's assertion of exclusive jurisdiction over derivatives markets and creates a meaningful circuit split with the Third Circuit, which reached the opposite preliminary conclusion in a related proceeding.

At the center of the dispute is whether contracts that allow users to take positions on sporting event outcomes fall under the CFTC's regulatory umbrella as "swaps," a classification that would trigger federal preemption and shield Kalshi from state-level oversight. The Ninth Circuit rejected that framing. The court's panel found there was "no likely federal preemption" of Nevada's authority, meaning the state can proceed with enforcing its sports betting laws against Kalshi's operations. Nevada requires sports betting operators to hold a state license, a requirement Kalshi has resisted on the grounds that its contracts are federally regulated financial instruments, not gambling products.

The ruling carries weight beyond Kalshi itself. The CFTC has long maintained that derivatives and swap contracts fall exclusively under its jurisdiction by virtue of the Commodity Exchange Act, a position that has generally held up in enforcement actions against prediction markets and other novel contract structures. A federal appellate court now disagrees, at least in this circuit, and the contradiction with the Third Circuit's preliminary view means the legal question is genuinely unsettled. That split is exactly the kind of conflict that can attract Supreme Court review, and Kalshi or the CFTC could seek certiorari to resolve it.

"An appeals court sided with a lower court's ruling that Kalshi failed to show that the federal government preempts Nevada's authority."

Ninth Circuit Court of Appeals

The practical stakes for the broader derivatives and prediction market space are considerable. If states can assert regulatory authority over contracts that platforms classify as federally regulated derivatives, national operators face the prospect of complying with a patchwork of state licensing regimes, each with its own capital requirements, consumer protection rules, and approval timelines. That compliance burden falls most heavily on smaller platforms and new entrants. Predictions.io's recent launch of a comparison tool spanning 9,700 markets illustrates how rapidly the prediction market space is expanding, which makes the jurisdictional question increasingly urgent for the industry.

The ruling also arrives as Congress actively debates the contours of federal digital asset oversight. The CLARITY Act, which heads to a Senate cloture vote on September 15, would establish clearer boundaries between CFTC and SEC authority over digital assets. Whether it addresses the specific question of event contracts and their relationship to state gambling law remains unclear, but the Ninth Circuit's decision adds pressure on legislators to close what is now a judicially contested gap in federal preemption doctrine.

Kalshi's legal strategy has been to position its contracts as financial instruments subject to CFTC oversight rather than gambling products subject to state gaming law. That argument succeeded in keeping the platform operational during earlier litigation, but the Ninth Circuit has now stripped away the injunctive protection that strategy depended on. The company could appeal to the full Ninth Circuit en banc, petition the Supreme Court, or seek relief through Congress. None of those paths is quick.

For the CFTC, the ruling constrains the jurisdictional reach the agency has sought to assert over an expanding class of digital contracts. The commission has been aggressive in claiming authority over crypto derivatives platforms, but a federal appellate court finding that certain event contracts simply are not swaps limits the statutory hook the CFTC relies on. Whether the agency intervenes directly in further proceedings or waits for a potential Supreme Court resolution will signal how seriously it views the threat to its regulatory perimeter.