Kalshi Sports Push Backfires as Ninth Circuit Calls Contracts Bets

A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit ruled Friday that Kalshi’s sports event contracts are sports bets, not “swaps” under the Commodity Exchange Act, and affirmed dissolving the injunction as to sports. The decision lets the Nevada Gaming Control Board enforce state gaming laws against Kalshi, Crypto.com and Robinhood.

Judge Ryan D. Nelson wrote the unanimous opinion for a panel of three Trump appointees. The court remanded Nevada’s challenge to Kalshi’s election contracts for fresh consideration consistent with the sports holding.

The holding turns on a threshold classification, not a balancing of state and federal interests. Once the contracts fall outside the swap definition, the preemption analysis never starts. That sequencing is why Nevada recovers enforcement power immediately on sports while election contracts return to the district court under the same lens.

The Panel Called Them Sports Bets Not Swaps

Kalshi argued its contracts trade on a CFTC-designated contract market and therefore fall under exclusive federal jurisdiction. The panel agreed the CEA expressly preempts state regulation of true swaps on a DCM. It then held the sports contracts are not swaps at all.

The sports event contracts were not “swaps” because they were sports bets.

Judge Ryan D. Nelson, Ninth Circuit opinion, KalshiEX LLC v. Assad

Nelson added that denying the contracts are sports bets under a reasonable person’s understanding is disingenuous. Everyone, including Kalshi, knows it when they see it. The contracts carry the hallmarks of sports betting: outcomes of games, prop-style wagers inside games, spreads and parlays. Kalshi even advertised itself as the first app for legal sports betting in all 50 states.

The court treated that advertising as a party admission rather than marketing color. A platform that sells itself as legal sports betting in every state undercuts any later claim that the same products are pure derivatives for federal purposes. The panel’s reasonable-person test leaves little room for recharacterization on remand.

The court also pointed to CFTC Regulation 40.11, which categorically prohibits swaps involving gaming. Because the existing regulation still bars gaming-related contracts, the panel said, and because Kalshi’s reading of the swap definition has no limiting principle, federal preemption does not apply. The existing regulation controls for now, even if a pending CFTC proposal might later loosen the rules.

Without a limiting principle, any wager dressed as a binary payout on a DCM could claim federal shelter. The panel refused that path. Classification first, preemption second. Sports contracts fail at step one, so state gaming statutes apply in full.

• Outcomes of games as the settlement trigger
• Prop-style wagers tied to in-game events
• Spreads and parlays that mirror sportsbook menus
• Public marketing as legal sports betting across all 50 states

How the Third Circuit Landed Differently

In April the Third Circuit reached the opposite preliminary conclusion in Kalshi’s New Jersey case. A 2-1 panel held the sports contracts qualify as swaps and that the CEA both field-preempts and conflict-preempts state gambling laws as applied to a DCM.

• Third Circuit (April 6, 2026): contracts are swaps; CFTC exclusive jurisdiction; injunction for Kalshi affirmed.
• Ninth Circuit (August 28, 2026): contracts are sports bets, not swaps; no likely preemption; injunction dissolved for sports.
• Result: clear circuit split on the same products and the same statutory text.

Same statutory text, same product category, opposite gates. The Third Circuit treated the DCM listing as decisive and read the swap definition broadly. The Ninth Circuit treated economic substance and common understanding as decisive and never reached field or conflict preemption.

CFTC spokesman Zach Fulton said the Ninth Circuit “erred today” and “invented a new and atextual exception” to the CEA. A derivative structured as a swap remains a swap regardless of the underlying subject, he argued, with only narrow statutory carve-outs for onions and movie box-office receipts. Kalshi spokeswoman Dani Lever said the company still believes CFTC regulations as written do not prohibit sports contracts and that it will seek further review.

Fulton’s onions and box-office examples mark the agency’s preferred map: Congress named the carve-outs, so courts should not add sports. Nelson’s panel answered that the contracts never entered the swap category, so the carve-out list never came into play. That is the split in one exchange of theories.

Ninety Percent of the Handle Came From Sports

The reckoning starts with volume. According to the Ninth Circuit opinion, more than 90 percent of Kalshi’s trades in 2025, representing 95 percent of its revenue, were sports-related. Later court filings in Connecticut put sports offerings between 80 and 90 percent of the platform’s contracts as of early 2026.

That concentration turned a prediction market into something state regulators recognized immediately as an unlicensed sports pool. Nevada’s Gaming Control Board sent a cease-and-desist in March 2025. Connecticut’s Department of Consumer Protection followed in December 2025. On August 26 Connecticut Attorney General William Tong sued for an injunction, stating that Sports event contracts are no different than sports betting and are not magically shielded by federal law.

Key figures from the record

• 90%+ of Kalshi 2025 trades sports-related
• 95% of 2025 revenue from sports contracts
• 3-0 Ninth Circuit panel (all Trump appointees)
• 9 states inside the Ninth Circuit now holding a favorable precedent

Traditional sportsbooks noticed. After the ruling, FanDuel shares rose 7.13 percent and DraftKings 4.29 percent, according to tallies shared by gaming lawyer Daniel Wallach.

Volume of that scale made the federal-label defense harder to sustain before any judge applying a reasonable-person standard. Regulators in Nevada and Connecticut did not need discovery to see the business model. The handle figures supplied the probable cause; the marketing supplied the gloss.

Election Contracts Face the Same Logic

The panel remanded Nevada’s challenges to Kalshi’s election contracts “consistent with this opinion.” That single sentence turns the sports loss into a broader threat.

Wallach, who has followed the litigation closely, called the sequence a Cautionary tale. No state was going after election contracts until Kalshi pushed the envelope on sports. Replies on the thread noted that sports already supplied the overwhelming majority of handle; the election markets functioned more as cover and brand legitimacy.

Kalshi began offering election contracts in 2023 and sports contracts in January 2025. The sports products drove the growth that made the platforms visible targets. Now the same textual analysis that stripped sports of swap status can be applied to any contract whose economic substance looks like a wager on a public outcome. District courts inside the Ninth Circuit must weigh that consistency instruction.

The remand does not decide elections. It binds lower courts to the sports reasoning when they test whether election contracts are swaps or wagers. If substance again controls over DCM status, election listings lose the easy preemption shield sports just lost.

1. 2023: Kalshi begins election contracts.
2. January 2025: Sports contracts launch and drive visible growth.
3. March 2025 onward: State cease-and-desist letters and suits target the sports-heavy mix.
4. August 28, 2026: Sports classified as bets; elections remanded on the same logic.

FanDuel and DraftKings Shares Jumped

Licensed operators and state treasuries are the clearest short-term winners. Nevada Governor Joe Lombardo said prediction markets offering sports-event contracts constitute gambling and must comply with the state’s framework. Nevada Gaming Control Board Chairman Mike Dreitzer called the ruling complete vindication of what the board had said all along.

Arizona, California, Hawaii, Idaho, Montana, Oregon, Washington and Alaska sit inside the same circuit. Several of those states already face CFTC lawsuits asserting exclusive federal jurisdiction. The Ninth Circuit decision supplies a template for their own enforcement letters and injunction motions.

Indian gaming associations and problem-gambling groups filed amicus briefs supporting Nevada. Forty-four state attorneys general had already written the CFTC opposing any expansion of sports contracts under a new definition of gaming.

The share moves track a simple substitution story. If unlicensed event contracts retreat in a major circuit, handle can flow back to operators already paying state taxes and holding state licenses. Lombardo and Dreitzer framed the same point as sovereignty: Nevada sets gaming rules inside Nevada unless a true federal swap is on the table.

Regulation 40.11 Still Blocks Gaming Contracts

Even before the swap-or-bet label, CFTC Regulation 40.11 categorically prohibits swaps involving gaming. The Ninth Circuit relied on that bar to show why Kalshi’s preemption theory could not run. If gaming-related contracts remain forbidden under the agency’s own rule, a DCM listing does not create a federal safe harbor states must respect.

The pending CFTC proposal to ease event-contract rules sits in the background only. It has not displaced Regulation 40.11. Self-certified sports listings therefore stay exposed on two tracks at once: state gambling law if they are bets, and the existing federal gaming ban if someone still calls them swaps.

Fulton argued a derivative structured as a swap remains a swap regardless of the underlying subject, subject only to the narrow statutory carve-outs for onions and movie box-office receipts. Lever answered that the regulations as written do not prohibit sports contracts and that Kalshi will seek further review. The panel’s holding sidesteps that duel by denying swap status outright for sports.

For compliance teams, the practical order is now local first inside the Ninth Circuit. A platform cannot assume that DCM status plus a future rule proposal will outrun a cease-and-desist grounded in state sports-pool statutes and buttressed by Regulation 40.11 as it reads today.

Platforms Face a Patchwork of State Power

Kalshi has already restricted Nevada users from sports, elections and entertainment contracts while the litigation continues. Other platforms face the same geographic patchwork. Crypto.com and Robinhood appear beside Kalshi in the enforcement frame the Ninth Circuit left standing.

Connecticut’s suit, filed two days before the Ninth Circuit ruling, shows how quickly states outside the circuit can borrow the same theory. Tong’s complaint tracks the Nevada theme: sports event contracts equal sports betting, and federal law supplies no magic shield. The Third Circuit still points the other way for New Jersey, so product geography now dictates legal risk.

• Ninth Circuit states: sports injunctions dissolve; state gaming boards hold the edge.
• Third Circuit posture: swaps framing and CFTC exclusivity still support platform injunctions.
• CFTC suits against states such as Arizona: proceed under a contrary appellate holding in the West.
• Forty-four state attorneys general: already on record against expanding sports contracts through a new gaming definition.

Amicus support from Indian gaming associations and problem-gambling groups adds political weight to the state side. Licensed markets and tribal compacts both treat unauthorized sports pools as a direct commercial threat. The Ninth Circuit did not need those briefs to classify the contracts, but the coalition explains why enforcement letters multiplied once sports volume dominated the platforms.

What the Ninth Circuit States Can Do Now

Kalshi’s next choices are rehearing en banc or a straight petition to the Supreme Court. Wallach expects the latter. The panel draw of three Trump appointees already went 0-3 against the company; an en banc request would face long odds inside the same circuit that just ruled.

1. March 2025: Nevada Gaming Control Board cease-and-desist to Kalshi on sports and election contracts.
2. April 2025: District court grants Kalshi preliminary injunction (later dissolved).
3. April 6, 2026: Third Circuit affirms New Jersey injunction for Kalshi.
4. June 2026: CFTC proposes new event-contract rules that could soften the gaming ban.
5. August 26, 2026: Connecticut sues Kalshi for unlicensed sports betting.
6. August 28, 2026: Ninth Circuit affirms dissolution of Nevada sports injunction and remands elections.

The CFTC has sued multiple states, including Arizona, to protect its claimed exclusive jurisdiction. Those cases now proceed against a contrary appellate holding in the largest western circuit. Meanwhile the agency’s own regulation still prohibits gaming contracts, so self-certified sports listings remain vulnerable even if a future rule change arrives.

Nine states now hold favorable precedent on the sports classification question. Enforcement letters and injunction motions can copy Nevada’s path without waiting for the CFTC proposal or a Supreme Court caption. District judges bound by the Ninth Circuit must start from bets, not swaps, when sports event contracts appear in the caption.

Kalshi has already restricted Nevada users from sports, elections and entertainment contracts while the litigation continues. Other platforms face the same geographic patchwork. The Supreme Court now has a clean split on whether Congress, when it expanded the definition of swap in Dodd-Frank, quietly federalized sports betting. Until that question is answered, states that treat the products as gambling retain the upper hand inside the Ninth Circuit, and the election contracts that once looked like the safer core product sit under the same analytical cloud the sports contracts created.