Analysis
A Ninth Circuit panel handed Nevada a win on Aug. 28, holding that Kalshi's sports event contracts are not "swaps" under the Commodity Exchange Act and therefore do not preempt state gambling law. CoinDesk framed it as confirmation of state power over prediction markets; Ars Technica put it more bluntly as gambling with a different name.
The legal architecture Kalshi built its business on was federal preemption. As a CFTC-designated contract market, Kalshi argued its event contracts are federally regulated derivatives, and that a state gaming board has no more authority over them than over an oil future. That argument is why Kalshi could offer sports contracts in all fifty states while licensed sportsbooks negotiate state by state, pay state tax rates and fund compliance in each jurisdiction.
The panel rejected it. If the reasoning holds, the regulatory arbitrage that made prediction markets structurally cheaper than sportsbooks narrows considerably.
“Kalshi was founded in 2018 by Tarek Mansour and Luana Lopes Lara, went through Y Combinator, and won CFTC designation in 2020 after a long approval fight.”
Kalshi was founded in 2018 by Tarek Mansour and Luana Lopes Lara, went through Y Combinator, and won CFTC designation in 2020 after a long approval fight. Volume was modest until the 2024 election cycle, then exploded when sports contracts launched -- sports, not politics, is where the retail volume lives. Polymarket, its main competitor, took the opposite regulatory path, operating offshore before settling with the CFTC and re-entering the US market. DraftKings and FanDuel are the incumbents with the state licenses Kalshi was trying to avoid needing, and both have lobbied hard for exactly this outcome.
The map is now genuinely split: Kalshi has won a temporary block on Tennessee's gambling laws while losing in the Ninth Circuit on Nevada. Circuit splits are how cases reach the Supreme Court, and this one is heading that way.
The honest counterweight is that a panel decision is not final. En banc review is available, the CFTC's own position on event contracts has shifted with administrations, and Congress could resolve it by statute. But the cost of being wrong is asymmetric: state-by-state licensing means state taxes, state compliance and state-level market access, which is a fundamentally different business than the one Kalshi's valuation assumes.
