Kalshi Appeal Raises Prospect of Supreme Court Showdown

Thursday the U.S. Court of Appeals for the Ninth Circuit heard oral arguments in San Francisco in Kalshi’s appeal of a lower court order that bars the prediction markets platform from offering certain event-based contracts in Nevada. Kalshi is asking the appeals court to overturn the ruling that the company must hold a Nevada gaming license to sell contracts tied to political outcomes, economic indicators and other real-world events.

Kalshi contends the contracts are “swaps” under the Commodity Exchange Act and therefore fall under the Commodity Futures Trading Commission’s exclusive jurisdiction. Nevada regulators have treated the contracts as illegal gambling and say the company must comply with state gaming laws. The Ninth Circuit panel did not issue a decision at the hearing.

Participants and the presiding judge referenced multiple state enforcement actions against prediction market platforms, including criminal charges filed in Arizona. Last week a federal court temporarily barred Arizona authorities from applying the state’s gambling laws to Kalshi’s event contracts.

Colleen Sinzdak, arguing for Kalshi, told the court: “I think the body of case law does demonstrate that what we really need to avoid here is having a state and a federal court considering exactly the same issue at exactly the same time and potentially reaching different outcomes.”

CFTC Chair Michael Selig has indicated that at least some event contracts should be treated as swaps. The agency has taken a similar position in a separate dispute involving Crypto.com and Nevada regulators.

The outcome could affect where platforms such as Polymarket and Kalshi can list contracts tied to elections, policy decisions or sporting events. Market participants have estimated the prediction markets sector could reach as much as $1 trillion by 2030.

Paul Grewal, Coinbase’s chief legal officer, posted on social media that questions at oral argument are an unreliable predictor of how a court will rule and added, “Either way, I stand by my longstanding prediction-the Supreme Court will resolve whether sports [contracts] on [Designated Contract Markets] are swaps subject to the exclusive jurisdiction of the CFTC.”

Legal analysts said differing rulings among federal appeals courts could create circuit splits and increase the likelihood of Supreme Court review. The Supreme Court’s 2018 decision in Murphy v. National Collegiate Athletic Association affirmed states’ authority to regulate sports gambling but did not resolve when federal commodities law displaces state gaming rules for novel contract structures.

If the Ninth Circuit upholds Nevada, states could continue to require gaming licenses for a broad set of event contracts and pursue enforcement actions. If the court accepts Kalshi’s preemption argument, the CFTC would likely expand oversight and enforcement for those contracts. Any Ninth Circuit ruling could be appealed to the U.S. Supreme Court.