Ninth Circuit rules prediction market contracts are sports bets, not derivatives
A federal appeals court has rejected the classification of sports-related event contracts as federally regulated derivatives, setting the stage for a Supreme Court showdown that could reshape the prediction market industry.
The 9th U.S. Circuit Court of Appeals has denied injunctive relief to prediction market platforms seeking to halt Nevada’s efforts to shut down their operations. The court concluded that sports-related event contracts offered by these firms constitute gambling rather than federally regulated derivatives.
The ruling directly impacts Kalshi, Crypto.com, and Robinhood, all of which sought to block the Nevada Gaming Control Board from treating their offerings as illegal gambling. State regulators across 44 jurisdictions have long argued these products are merely sports betting disguised as financial instruments.
At the heart of the dispute is regulatory jurisdiction. The Commodity Futures Trading Commission asserts exclusive federal authority over all event contracts, classifying them as swaps. However, the Ninth Circuit explicitly rejected this, stating in its opinion against Kalshi that the contracts were not swaps because they were sports bets.
Nevada officials celebrated the decision as a defense of state authority. Alcinia Whiters, a deputy communications director for the state Attorney General’s office, noted that sports betting does not transform into a financial instrument simply because a company labels it an event contract.
The CFTC strongly disputed the court’s reasoning. A spokesperson argued that a derivative structured as a swap remains a swap regardless of the underlying subject matter, citing statutory exceptions only for onions and movie box office receipts. The agency accused the court of inventing an atextual exception to the Commodity Exchange Act.
Path to the Supreme Court
Legal experts anticipate this regulatory battle will ultimately reach the Supreme Court. The Ninth Circuit’s stance directly contradicts a ruling from the 3rd U.S. Circuit Court of Appeals in early April, which held that only the CFTC has jurisdiction over sports-related event contracts.
Joshua Mitts, a professor at Columbia Law School, described the conflicting appellate decisions as a classic circuit split. Such fundamental disagreements on federal jurisdiction typically force the Supreme Court to intervene and establish a unified national standard.
Robinhood announced plans to appeal, arguing that eligible customers deserve access to markets regulated by the CFTC through its registered Futures Commission Merchant. Kalshi and Crypto.com did not immediately respond to requests for comment.
Traditional sports betting operators saw immediate benefits from the ruling. Shares of DraftKings jumped 7 percent, while Flutter Entertainment, the parent company of FanDuel, rose more than 6 percent. Both companies have faced investor concerns over prediction markets disrupting their core business, prompting them to rapidly develop their own competing exchanges.
