Court Ruling Leaves Kalshi Exposed to Nevada Enforcement
A federal appeals court ruled on Aug. 28 that Kalshi had not shown Nevada’s regulation of its sports-event contracts was likely preempted by federal commodities law. The unanimous Ninth Circuit decision allows Nevada gaming authorities to enforce state requirements while litigation continues.
The 3-0 ruling affirmed the dissolution of an earlier injunction protecting Kalshi from Nevada enforcement. The panel also returned Nevada’s separate election-contract claims to the district court for further review.
Why Kalshi’s Preemption Argument Failed
Kalshi argued that its sports-event contracts qualified as swaps under the Commodity Exchange Act. Because Kalshi operates a CFTC-regulated designated contract market, it said federal jurisdiction displaced Nevada’s gaming laws.
The Ninth Circuit rejected that argument at the preliminary-injunction stage, finding that the contracts likely fell outside the applicable meaning of “swap” because they functioned as sports bets. The panel consequently rejected Kalshi’s express, conflict and field-preemption arguments.
Circuit Judge Ryan Nelson wrote that “the CFTC is not a national gambling regulator.” The court said Kalshi’s broader interpretation lacked a limiting principle and did not fit the surrounding statutory framework.
Major-Questions Doctrine Looms Over CFTC Rulemaking
The opinion also raised concerns under the major-questions doctrine. It said Kalshi’s broad interpretation of “swap” “would raise concerns under the major-questions doctrine.” It did not hold that the doctrine categorically prevents the CFTC from regulating prediction markets.
However, the ruling did not invalidate the Commodity Futures Trading Commission’s proposed event-contract rules or decide whether a future final rule would survive an Administrative Procedure Act lawsuit.
A Dispute Over the Ruling’s Meaning
Gaming attorney Daniel Wallach argued that the CFTC’s rulemaking was “DOA” because of the court’s major-questions analysis. He predicted APA litigation in a California federal court.
Ripple CTO emeritus David Schwartz disputed Wallach’s reading. “This seems to be incorrect to me,” Schwartz said. He argued that Congress could create a federal framework for exchange-traded contracts without displacing conventional state-regulated sportsbooks.
Schwartz’s comments represented his interpretation, not a Ripple corporate position or judicial finding. The ruling addressed whether Kalshi had demonstrated a likelihood of success on its preemption claim.
CFTC Proposal for Event Contracts Remains Pending
The CFTC’s proposal would amend Rule 40.11, which governs event contracts involving gaming, terrorism, assassination, war and activities unlawful under federal or state law.
The proposal would establish a 90-day review process and define how the agency interprets “gaming” and when a contract “involves” an enumerated activity. The CFTC would evaluate covered contracts individually using specified public-interest factors.
The comment period closed on July 27. The agency can revise, finalize or withdraw the proposal after reviewing those submissions. A final rule could face an APA challenge over statutory authority, procedure or agency reasoning. Wallach predicted such a lawsuit, but no matching complaint had been verified when the debate emerged.
Circuit Split Raises Supreme Court Stakes
The Ninth Circuit’s decision conflicts with a Third Circuit ruling favoring Kalshi in its dispute with New Jersey. That disagreement makes Supreme Court review more plausible, although review is not guaranteed.
New Jersey faced a Sept. 3 deadline to seek further review of the Third Circuit decision, according to Reuters. Kalshi could also seek Ninth Circuit rehearing or petition the Supreme Court, but neither action was immediately confirmed.
The jurisdictional dispute extends beyond Nevada. Several states classify sports contracts as gambling products requiring local licenses. Kalshi maintains that federal derivatives regulation preempts those requirements.
For now, Nevada can enforce its gaming laws against Kalshi’s sports contracts. The CFTC proposal remains alive, but the Ninth Circuit opinion provides prospective challengers with another argument against any final rule claiming broad authority over sports-event markets.
