9th Circuit sides with states in Kalshi gambling fight
Source Entity
Hacker News
The 9th Circuit Court of Appeals ruled that sports-related event contracts on platforms like Kalshi, Crypto.com, and Robinhood constitute gambling rather than federal swaps. This decision undermines previous injunctions and empowers states to enforce local gaming laws against these prediction markets.
The 9th Circuit's Stance on Prediction Markets
A recent ruling by the 9th U.S. Circuit Court of Appeals has significantly altered the legal landscape for prediction market firms, including Kalshi, Crypto.com, and Robinhood. The court unanimously determined that sports-related event contracts offered by these platforms do not qualify as "swaps" under the federal Commodity Exchange Act. By rejecting the classification of these contracts as federally regulated derivatives, the court has effectively cleared the way for states to treat these offerings as standard gambling activities subject to local regulation.
Undermining the Federal Preemption Argument
The core of the industry's legal strategy has been the claim that federal law preempts state-level gaming restrictions. However, the 9th Circuit’s decision directly contradicts this interpretation. By ruling that these contracts fall outside the scope of federal oversight, the court has stripped these companies of their primary defense against state-level litigation. This is a major blow to firms that sought to operate nationally by bypassing state gaming control boards.
Impact on Arizona and the Liburdi Injunction
This appellate decision has immediate consequences for legal battles in Arizona. Earlier this year, federal Judge Michael Liburdi issued an injunction preventing Arizona Attorney General Kris Mayes from prosecuting Kalshi for violating state laws, including prohibitions on election betting and general gambling statutes. The 9th Circuit’s new ruling undercuts the rationale behind that injunction, providing the state of Arizona with a powerful legal precedent to argue that the injunction should be dissolved.
A Conflict of Circuits
The legal environment is further complicated by a split among federal courts. The 9th Circuit’s ruling stands in direct opposition to a decision made by the 3rd Circuit Court of Appeals in April, which had favored a broader definition of swaps. This "circuit split" creates significant legal uncertainty, making it highly probable that the matter will eventually reach the U.S. Supreme Court for a definitive resolution on the intersection of federal commodity law and state gaming jurisdiction.
Broader Implications for the Prediction Market Industry
For platforms like Kalshi, Crypto.com, and Robinhood, the ruling represents an existential challenge. If states like Nevada and Arizona are permitted to enforce their own gaming frameworks—which include strict licensing, tax, and oversight requirements—the current business model of these platforms could become untenable. The Nevada Gaming Control Board has already signaled its intent to use this ruling to enforce its regulatory framework, framing these prediction markets as gambling operations that have attempted to evade oversight through nomenclature.
Future Trends and Regulatory Outlook
Moving forward, the industry faces a difficult path. While there is reported interest from political factions, including some in the Trump administration, to support the growth of prediction markets, the judiciary appears focused on the technical interpretation of existing statutes. As states continue to assert their authority, we can expect a wave of litigation across the country, with prediction markets forced to navigate a patchwork of state laws until the Supreme Court provides a final, nationwide standard for how event contracts are classified.