Prediction market platform Kalshi has escalated its legal challenge against the state of Nevada, filing a petition for an en banc rehearing before the Ninth Circuit Court of Appeals. The move comes after a three-judge panel ruled in favor of Nevada, upholding the state regulator’s authority to classify Kalshi’s sports-related event contracts as gambling.
Background: Kalshi vs. Nevada Regulatory Action
The dispute centers on Kalshi’s offerings of event contracts tied to sports outcomes. The Nevada Gaming Control Board (NGCB) previously issued a cease-and-desist order asserting that these contracts constitute unlicensed gambling under state law. Kalshi, a federally regulated exchange overseen by the Commodity Futures Trading Commission (CFTC), argues that its contracts fall under federal derivatives jurisdiction and are therefore preempted from state gambling regulation.
Ninth Circuit Panel Decision
In a recent decision, a Ninth Circuit panel sided with Nevada. The court held that the state retains the authority to regulate the sports contracts as gambling, rejecting Kalshi’s argument that the Commodity Exchange Act (CEA) preempts state law in this instance. The panel’s ruling effectively allows the NGCB’s enforcement action to proceed, creating a significant regulatory hurdle for the platform’s operations in the state.
Petition for En Banc Rehearing
Kalshi’s petition for a full court rehearing—known as an en banc review—asks the entire complement of active Ninth Circuit judges to reconsider the panel’s decision. Such petitions are granted sparingly, typically reserved for cases involving exceptional importance or conflicts with precedent. Kalshi contends that the panel’s ruling creates a circuit split regarding the scope of CEA preemption and threatens the regulatory framework for federally designated contract markets.
Implications for Prediction Markets and Federal Preemption
The outcome of this case carries broad implications for the prediction market industry and the balance of power between federal derivatives regulation and state gambling laws. A final ruling affirming state authority could encourage other states to pursue similar enforcement actions against federally regulated exchanges offering event contracts on sports, elections, or other outcomes. Conversely, a reversal would reinforce the CFTC’s exclusive jurisdiction over designated contract markets.
Next Steps
The Ninth Circuit will now decide whether to grant the petition for en banc review. If denied, the panel’s decision stands, and Kalshi may consider petitioning the U.S. Supreme Court. If granted, the case will be re-argued before a larger bench of judges, extending the legal timeline but offering Kalshi a critical opportunity to overturn the adverse precedent.
