Ninth Circuit Rejects Kalshi Rehearing Request in Nevada Sports Prediction Market Case

Kalshi has suffered a significant legal defeat as the Ninth Circuit Court of Appeals unanimously rejected the company's request for rehearing on its Nevada sports event contracts dispute. The October 4 decision, which denied both a panel rehearing and a full en banc review, leaves intact an earlier ruling that determined Kalshi's sports event contracts do not qualify as swaps under the Commodity Exchange Act (CEA). This classification means the prediction market operator cannot rely on federal derivatives regulation to shield its products from state gambling laws.

The ruling exposes Kalshi to potential civil and criminal liability from Nevada gaming regulators, despite the company operating under Commodity Futures Trading Commission (CFTC) supervision as a federally designated contract market (DCM). In its 78-page petition for rehearing, Kalshi argued that the court's interpretation created an untenable conflict: the CFTC had granted the company exclusive federal jurisdiction and explicitly permitted sports event contracts to trade on its platform, yet state regulators could nonetheless prosecute the same contracts as illegal gambling.

The fundamental legal question at stake concerns regulatory jurisdiction over prediction markets tied to sporting events. Kalshi contends that federal oversight should preempt state gambling laws for instruments traded on federally authorized exchanges. The appeals court disagreed, ruling that states retain independent authority to regulate these products as gambling regardless of federal permission.

Kalshi now has 90 days to petition the U.S. Supreme Court for review, represented by attorney Paul Clement. The company could also coordinate this appeal with separate litigation before the Third Circuit, which has become part of the broader legal contest over prediction market regulation. The Supreme Court path remains uncertain, particularly given the emerging regulatory framework from the CFTC itself.

The appeals court decision arrives amid active CFTC rulemaking on event contracts. On October 9, the federal agency issued a Notice of Proposed Rulemaking and Interim Final Rule to clarify its jurisdiction over event contracts, including sports-related markets. Public comment on these proposed regulations closes November 18. Kalshi could benefit from waiting for the CFTC process to advance before pursuing Supreme Court review, as favorable federal guidance might strengthen its legal position or render certain claims moot.

This case reflects a fundamental tension in U.S. gambling regulation: whether prediction markets constitute commodities derivatives subject exclusively to federal oversight or gambling products subject to state police powers. The outcome will shape the operational landscape for all prediction market platforms, not just Kalshi. Notably, Polymarket has already suspended sports event contract trading in response to state enforcement pressure, suggesting the regulatory environment continues to tighten. The Second Circuit's concurrent denial of Kalshi's request to block enforcement by New York and Connecticut officials reinforces that courts across multiple jurisdictions view state authority as legitimate. Kalshi's next move will likely determine whether the Supreme Court accepts the jurisdictional question for resolution or defers to administrative processes still underway at the CFTC.