A U.S. appeals court ruled that sports prediction contracts are not swaps, dealing a major blow to prediction market firm Kalshi.
Prediction market firm Kalshi lost a key legal ruling, and its sports prediction products in Nevada face continued regulatory pressure.
On August 28 local time, the U.S. Ninth Circuit Court of Appeals ruled that the Nevada Department of Gaming Regulation can continue to treat sports betting markets as unlicensed sports betting operators and reject Kalshi's broad interpretation of federal commodity law.
The court upheld the lower court's ruling to lift the injunction, meaning that the legal protection that previously prevented Nevada regulators from enforcing the law has been lifted.
This ruling resulted in a division within the circuit courts, and as litigation over the sports prediction market continues to escalate across the United States, this disagreement is expected to draw the attention of the Supreme Court. The court also remanded matters related to Kalshi's election contract to a lower court for reconsideration.
Court: Sports prediction contracts are essentially sports betting.
The core dispute in this case lies in whether contracts predicting the outcome of sporting events fall under the category of swaps regulated by federal commodity laws, and thus are protected by the federal regulatory framework, thereby circumventing state-level gambling laws.
The Ninth Circuit Court of Appeals explicitly rejected Kalshi's claim. Lead Judge Ryan D. Nelson's ruling was direct in its wording:
Kalshi's denial that his sports contracts fall under the category of sports betting in the common understanding is dishonest.
The judgment further points out:
Sports event contracts are essentially sports betting, and this is not just an intuitive judgment that 'I can recognize it at a glance'—in fact, everyone, including Kalshi himself, can recognize it at a glance.
Circuit disputes open up space for Supreme Court intervention
This ruling has created divisions within the U.S. Federal Circuit court system, paving the way for the Supreme Court to make a final ruling on the legal characterization of the sports prediction market.
The prediction market is experiencing rapid expansion in the United States, and there is a fundamental legal dispute regarding the regulatory jurisdiction of such products. Whether they should be governed by federal commodity futures regulations or state-level gambling laws remains a subject of intense debate.
As related lawsuits continue to escalate across the country, whether the Supreme Court intervenes will have a decisive impact on the entire industry landscape.
It is worth noting that the court only made a ruling on the sports event contract this time, while the election contract issue of Kalshi was remanded to a lower court for separate trial. The regulatory fate of the two types of products may take different paths.
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