Ninth Circuit Ruling Sets Up a Kalshi Supreme Court Fight on Sept. 3

A Split Arriving Six Days Before a Deadline

Three judges of the U.S. Court of Appeals for the Ninth Circuit ruled unanimously on Friday that Kalshi had not shown the Commodity Exchange Act preempts Nevada’s gaming regulations as applied to its sports event contracts.

The panel affirmed a district court order dissolving the injunction that had let the exchange keep offering the contracts in the state, and remanded for the district court to consider Nevada’s challenges to Kalshi’s election contracts. Crypto.com and Robinhood, which offer event contracts through the same market, also lost their bids for injunctive relief. Judge Ryan D. Nelson wrote the opinion, joined by Judges Bridget S. Bade and Kenneth K. Lee, who filed a concurrence.

The reasoning splits on a single word. The panel accepted that Section 2 of the act expressly preempts state regulation of swaps traded or executed on a designated contract market, and nobody disputed that Kalshi runs one. But it concluded that the contracts are not swaps, because they are bets.

“The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps,” Nelson wrote, adding that placing sports bets, even when called by another name, is still gambling. He wrote that the contracts “do not help institutions or investors hedge against risk; they create risk, largely for ordinary consumers, where none previously existed,” and that the court would not read the statute so broadly as to hide, in his phrase borrowed from precedent, an elephant in a mousehole.

The panel also found that accepting Kalshi’s position would create a major questions problem, since it would mean Congress delegated the power to regulate gambling, traditionally exercised by states and tribes, to the Commodity Futures Trading Commission when it passed Dodd-Frank.

That is the reverse of what the Third Circuit held in April in KalshiEX, LLC v. Flaherty, which found the contracts likely were swaps and likely were preempted from state regulation. Two federal appeals courts now disagree on the same question, which is the most common reason the Supreme Court agrees to hear a case.

New Jersey has been waiting for exactly this. In a June 26 application to Justice Alito seeking more time to file its petition, the state argued the Third Circuit’s conclusion “would federalize a multi-billion-dollar-a-year sports-wagering industry at the expense of every state law in the country,” and asked for the extension partly because rulings expected from the Fourth or Ninth Circuits, or the Massachusetts Supreme Judicial Court, “would inform both the petition and this Court as to the presence of a split.” Kalshi did not oppose the request. Alito granted an extension to Aug. 4, then a further one on July 24, setting the deadline at Sept. 3, according to the Supreme Court’s docket. Jeremy Feigenbaum, New Jersey’s solicitor general, is counsel of record.

Reaction split along the same lines as the litigation. A CFTC spokesperson told CNBC that “a derivative contract structured as a swap is a swap regardless of the underlying subject matter — the only exceptions in statute are onions and movie box office receipts,” and that the panel “erred today when it invented a new and atextual exception to the CEA.” Kalshi spokesperson Dani Lever told The Hill the company would seek “further review,” and that it still believes CFTC regulations, as written, do not prohibit sports contracts and that the agency is working to clarify them.

Kalshi head of litigation Jovy Dedaj argued on X that both circuits agree federal law bars states from regulating federally licensed exchanges, and that the Ninth Circuit overstepped only in holding the contracts are not swaps, since Congress gave the commission rather than the states the power to decide whether gaming-related event contracts are contrary to the public interest.

Robinhood said it plans to appeal. All three judges on the panel were appointed by President Trump, whose administration has backed the commission’s claim to exclusive authority. Nevada’s attorney general’s office said sports betting does not become something else because a company calls it an event contract, according to CNBC, which discloses a commercial relationship with Kalshi, including a minority investment. Shares in DraftKings rose 7% on the ruling and Flutter Entertainment more than 6%.

The ruling lands on a beat where the direction of travel had already turned. Bitcoin.com News reported this month that a Connecticut judge found the contracts were never swaps, following Utah and Washington, while a Minnesota judge blocked a state ban but agreed some contracts are not swaps. Twenty states are now in active litigation over the question, and 44 signed a letter to the commission last month disputing its authority over sports event contracts. Until Friday, the only appellate ruling had gone Kalshi’s way.

Lee’s concurrence points to the one thing that could still change the answer. He wrote that he did not think the court needed to resolve the statutory question at all, because 17 C.F.R. § 40.11 bars gaming contracts, and while the CFTC has proposed revising that regulation, “it remains in the books and controls the outcome of this appeal.” The commission proposed in June to replace the categorical prohibition with a case-by-case public interest review. If that rule is finalized, the regulation the concurrence relies on will no longer read the way it does now.

The immediate consequence is in Nevada, where the state has pursued penalties of $120,000 a day over contracts reachable inside its borders, and across the rest of the circuit, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. Kalshi is already in that court on a separate tribal sovereignty appeal. None of it resolves until the justices decide whether to take the case, and that begins with what New Jersey files by Thursday.