Kalshi has faced a setback in its legal battle concerning sports event contracts in Nevada, though the appeals court has yet to resolve an important issue regarding election markets.
The Ninth Circuit's decision against Kalshi could have far-reaching effects on similar markets, particularly as it raises a crucial question about whether federal law restricts Nevada's ability to regulate election contracts.
On Friday, a panel of three judges ruled in favor of Nevada regarding Kalshi’s sports contracts, concluding that the Commodity Exchange Act (CEA) likely does not override state gambling laws in this context. However, the court has sent the matter of election contracts back to the district court for further evaluation.
Judge Ryan Nelson noted that the district court had not yet determined if Kalshi’s election contracts, which are prohibited under Nevada law and represent a small portion of Kalshi’s operations, fall under the CEA’s swap definition. The district court is now tasked with addressing this issue.
Currently, Kalshi is prohibited from offering election contracts in Nevada due to a state court injunction and has implemented geofencing to restrict access in the state. The key question remains whether Nevada's regulation of these markets is ultimately superseded by federal commodities law.
Kalshi initiated its election event contracts in June 2023, but Nevada issued a cease-and-desist order in March 2025 that impacted both its sports and election markets.
The Ninth Circuit acknowledged that the CEA does preempt state regulation of qualifying “swaps” on federally-regulated markets. It upheld U.S. District Judge Andrew Gordon’s finding that Kalshi’s sports event contracts do not meet that definition.
Judge Gordon’s ruling in November focused solely on sports contracts and did not apply the swap analysis to Kalshi’s election markets, which the Ninth Circuit has now instructed him to do. Under the CEA, the swap definition includes transactions linked to events or contingencies with potential financial implications.
The appeals court did not comment on whether Kalshi’s election contracts meet this definition, which limits Kalshi’s ability to argue for federal protection of its political markets against state regulation.
In terms of sports contracts, this ruling creates a divergence from the Third Circuit, which previously sided with Kalshi in its New Jersey litigation.
Election contracts are also under increasing scrutiny in various states. Washington, which is part of the Ninth Circuit, has secured a state court injunction against Kalshi’s election and political contracts. On August 20, Kalshi restricted access to its sports, election, and political markets in compliance with court-ordered geofencing.
Arizona has filed criminal charges against Kalshi related to election wagering for the upcoming presidential election and several state races. However, a federal court has temporarily blocked Arizona from enforcing its gambling laws against Kalshi during the ongoing litigation.
Additionally, Minnesota has enacted legislation banning prediction markets linked to political events. Following its passage, the CFTC, along with Kalshi and Polymarket, filed a lawsuit to prevent the enforcement of this new law. A federal judge has since granted preliminary relief, suggesting that the CEA likely preempts the state law.