Ninth Circuit Rules 3-0: Kalshi's Sports Contracts Are Not Swaps — States Can Regulate Them as Gambling
The U.S. Court of Appeals for the Ninth Circuit has ruled unanimously against Kalshi, holding that sports event contracts likely do not qualify as 'swaps' under the Commodity Exchange Act and that states may therefore regulate them as gambling. The 3-0 decision directly conflicts with the Third Circuit's April ruling in Kalshi's favor, creating a formal circuit split that virtually guarantees Supreme Court review. The Ninth Circuit's jurisdiction covers nine western states including California — the largest US market without legal sports betting — as well as Arizona, Nevada, Oregon, and Washington. New Jersey is preparing a SCOTUS petition with a September 3 deadline.
The U.S. Court of Appeals for the Ninth Circuit issued a unanimous 3-0 decision on August 28, ruling that Kalshi's sports event contracts likely do not qualify as 'swaps' under the Commodity Exchange Act and that Nevada — and by precedent, other Ninth Circuit states — can regulate them under state gaming laws. The court upheld Nevada's enforcement authority over Kalshi's sports contracts, rejecting Kalshi's argument that CFTC regulation of its designated contract market license displaces state gambling oversight. The ruling applies across the Ninth Circuit's jurisdiction: California, Arizona, Nevada, Oregon, Washington, Idaho, Montana, Alaska, and Hawaii. In California — the largest US state with no legal sports betting framework — the decision means state regulators now have appellate authority behind any enforcement action they choose to bring.
The Ninth Circuit's reasoning on the swap definition tracks Judge Oliver's August 11 Connecticut ruling and directly contradicts the Third Circuit's April decision. The Ninth Circuit panel found that Kalshi's sports event contracts do not satisfy the CEA's definition of a 'swap' because they pay out based on event outcomes — which team wins, which player scores — rather than on whether an event occurs at all. The Third Circuit reached the opposite conclusion in April, holding that the same contracts ARE swaps and therefore fall within the CFTC's exclusive jurisdiction. Two federal appellate courts have now answered the same statutory question about the same contracts in opposite directions. A circuit split on the interpretation of a federal statute is the clearest available trigger for Supreme Court review, and both Kalshi and the states have an interest in SCOTUS resolving the question definitively. New Jersey, which was on the losing side of the Third Circuit ruling, is preparing a petition for SCOTUS review with a September 3 deadline.
The Arizona implications are the most immediate. In May, the D. Arizona federal district court granted Kalshi a preliminary injunction blocking the Arizona AG from pursuing 20 misdemeanor charges over election and sports contracts — a win that Kalshi had cited as its only federal court PI victory of 2026. The Ninth Circuit ruling is now controlling precedent in Arizona. Arizona AG Kris Mayes posted on August 28 that her office is reviewing the opinion and examining its effect on the Arizona proceedings. If the Ninth Circuit's holding — that sports contracts are not swaps and are subject to state regulation — undermines the legal basis for the May Arizona PI, Mayes could move to vacate the injunction and resume prosecution. The Arizona case was one of three grounds on which Kalshi had argued CFTC preemption would succeed; the Ninth Circuit has now rejected that argument in the same circuit.
The NFL regular season opens September 4 — one week after the Ninth Circuit ruling. Prediction market analysts estimate September football-related volume above $4 billion across platforms. Kalshi enters the season with GeoComply geofencing in Michigan and Nevada (operational since August 12), Washington state geofencing due September 2, and now a Ninth Circuit ruling that could embolden California and other western states to act. California has the largest US sports fan base and no legal sports betting, meaning Kalshi's California market — unrestricted since the platform's US launch — is now operating under a new legal risk profile. Whether California AG Rob Bonta moves against Kalshi before or during NFL season, and whether the CFTC issues an emergency order to block any such action as it did for New York, Michigan, and other states, will be among the most closely watched developments of the coming weeks. The Supreme Court, when it eventually takes the case, will be resolving a question with NFL-season trading volume running at a rate that makes the outcome commercially decisive for every platform.
Operators mentioned in this article
Recent updates
Kalshi's Parlays Drive Back-to-Back $5B Days — and Hand Critics Their Strongest Argument
Kalshi traded a record $5.33 billion on November 7 and $5.36 billion on November 8, with multi-leg parlay-style 'combos' making up roughly 75% of both days' volume. Its 30-day volume topped $100 billion. But the parlay dominance cuts against the platform's legal defense: parlays are a quintessential sportsbook product, and the American Gaming Association has told the Second Circuit that parlays make up about two-thirds of Kalshi's volume and should be treated as sports bets. The implied house edge on 10-plus-leg combos is around 25%, undercutting the argument that these are neutral financial instruments rather than gambling.
Cruz Bill Would Require State or Tribal Approval for Sports Contracts — a Bipartisan Legislative Threat Emerges
Senator Ted Cruz, who chairs the Senate Commerce Committee, is preparing a bill that would bar federally regulated prediction markets from offering gambling-tied event contracts, including sports, unless a state or tribal government authorizes them. It would not ban the contracts nationwide but would require platforms to obtain approval jurisdiction by jurisdiction, resembling state-by-state sportsbook regulation. The proposal arrives as Democrats take control of both chambers after the midterms, creating a potential bipartisan reckoning: a Republican committee chair and a newly skeptical Democratic majority both eyeing restrictions on a sector that had relied on federal protection.
CFTC Tells Platforms to Stop Geofencing States — Directly Colliding With State Court Orders
The CFTC issued an interpretation on November 5 of its 'impartial access' core principle, telling regulated exchanges including Kalshi and Polymarket to drop state-by-state geographic blocks within 30 days or explain why they cannot. The demand collides head-on with existing state court orders that require the platforms to geofence: Washington ordered Kalshi to geofence in August, and Michigan ordered it to use licensed geolocation to block the state in September, with a $500,000 daily fine for violations. Chairman Michael Selig framed the interpretation as a uniformity requirement. The platforms are now caught between a federal demand to unblock states and state court orders to block them.