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 ruled 3-0 on August 28 that Kalshi's sports event contracts likely do not qualify as 'swaps' under the Commodity Exchange Act, allowing Nevada and other Ninth Circuit states — California, Arizona, Oregon, Washington, Idaho, Montana, Alaska, and Hawaii — to regulate them as gambling. The ruling rejects Kalshi's CFTC preemption argument and upholds Nevada's gaming enforcement authority. It directly contradicts the Third Circuit's April ruling, which found the same contracts ARE swaps and therefore within the CFTC's exclusive federal jurisdiction. Two appellate courts have now answered the same statutory question in opposite directions, creating a circuit split that virtually guarantees Supreme Court review. New Jersey is preparing a SCOTUS petition with a September 3 deadline.

For UK readers, the Ninth Circuit's reasoning maps directly onto the analytical framework UK regulators apply. The court found that sports event contracts pay out based on event outcomes — which team wins — rather than on whether an event occurs at all, and that this distinction places them outside the CEA's swap definition. The UK Gambling Commission and FCA draw exactly this line: a contract-for-difference tied to an underlying financial index is a derivative; a binary contract paying out on which team wins a football match is a wager. Judge Oliver drew the same line in Connecticut's August 11 federal ruling. The Ninth Circuit is now the second federal appellate court and the third federal court overall to reach this conclusion — joining Connecticut and the multiple district courts that denied Kalshi preliminary injunctions. The Third Circuit's contrary April ruling now looks like the outlier in a developing judicial consensus that sports outcome contracts are gambling products rather than financial instruments.

The California dimension is the commercially significant element for the NFL season. California has a population of 40 million and no legal sports betting — DraftKings and FanDuel do not operate sportsbooks there. Kalshi has been accessible to California users without restriction since its US relaunch. The Ninth Circuit ruling means that if the California AG moves against Kalshi's sports contracts, appellate authority now supports state enforcement. Whether California AG Rob Bonta acts before or during the NFL regular season — which opens September 4 — will determine whether Kalshi loses access to the largest US sports market. The CFTC could issue an emergency order as it did for New York, but each such order is itself contested in court, and the CFTC's emergency authority has not been tested in the Ninth Circuit, whose ruling now explicitly rejects the federal preemption argument those orders rely on.

The circuit split now runs across four circuits. The Third Circuit (April) ruled sports contracts ARE swaps; the Ninth Circuit (August 28) ruled they likely are NOT. The Second Circuit has two pending Kalshi appeals (New York and Connecticut, potentially consolidated). The Sixth Circuit has the Michigan case. Each circuit that rules against Kalshi deepens the split and adds weight to the argument for SCOTUS resolution. The Troutman Pepper Locke legal analysis published in July estimated SCOTUS could receive the case by June 2027; following the Ninth Circuit ruling, that timeline may compress. Whether the Court takes it on an emergency or certiorari basis, and whether it agrees with the Third Circuit or the Ninth, will determine whether prediction market sports contracts are a nationally uniform product or permanently fragmented across state lines.

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