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 the litigation continues. The court also raised concerns under the major-questions doctrine, but it did not invalidate the Commodity Futures Trading Commission’s proposed event-contract rules or determine whether a future final rule would survive a lawsuit under the Administrative Procedure Act.
Ninth Circuit ruling preserves Nevada sports-betting authority
Kalshi argued that its sports-event contracts qualified as swaps under the Commodity Exchange Act. Because the company operates a CFTC-regulated designated contract market, it claimed that federal jurisdiction displaced Nevada’s gaming laws.
The Ninth Circuit rejected that argument at the preliminary-injunction stage. The court found that the contracts likely fell outside the applicable meaning of “swap” because they functioned as sports bets. The panel therefore 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.
As crypto.news reported, the 3-0 ruling affirmed the dissolution of an earlier injunction that had protected Kalshi from Nevada enforcement. The panel sent Nevada’s separate election-contract claims back to the district court for further review.
Major-questions language does not end CFTC rulemaking
Gaming attorney Daniel Wallach argued that the CFTC’s rulemaking was “DOA” because of the court’s major-questions analysis. In an Aug. 29 post, he predicted that the proposal would face litigation under the Administrative Procedure Act in a California federal court.
That prediction goes beyond the court’s direct holding. The opinion said Kalshi’s broad interpretation of “swap” “would raise concerns under the major-questions doctrine.” It did not rule that the doctrine categorically prevents the CFTC from regulating prediction markets.
Ripple CTO emeritus David Schwartz disputed Wallach’s interpretation. “This seems to be incorrect to me,” Schwartz wrote. He argued that Congress could create a federal framework for exchange-traded contracts without displacing conventional state-regulated sportsbooks.
Schwartz’s comments reflected his own interpretation, not a Ripple corporate position or a judicial finding. The Ninth Circuit’s ruling addressed whether Kalshi had demonstrated a likelihood of success on its preemption claim.
CFTC event-contract proposal remains pending
The CFTC’s June 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 assess covered contracts individually using specified public-interest factors.
The Federal Register notice closed for public comments on July 27. After reviewing the submissions, the agency can revise, finalize or withdraw the proposal.
A final rule could face an Administrative Procedure Act challenge involving statutory authority, agency procedure or the rationale supporting the rule. Wallach predicted such a lawsuit, but no matching complaint had been verified when the debate emerged.
Circuit split increases Supreme Court stakes
The Ninth Circuit’s decision conflicts with a Third Circuit ruling that favored Kalshi in its dispute with New Jersey. The 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 a rehearing before the Ninth Circuit or petition the Supreme Court, but neither action had been immediately confirmed.
The jurisdictional dispute extends beyond Nevada. Several states classify sports contracts as gambling products that require 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 active, but the Ninth Circuit opinion gives potential challengers another argument against any final rule that claims broad authority over sports-event markets.
