A panel of appeals court judges Thursday expressed doubt over a lawsuit from leading prediction markets seeking to prevent state-level regulatory enforcement, indicating potential opposition in a case that could shape the future of the multibillion-dollar prediction market industry.
- Appeals court judges expressed skepticism toward prediction markets’ claims that federal law preempts state gambling regulation.
- The case centers on whether event contracts qualify as federally regulated “swaps” or state-regulated gambling products.
- Conflicting rulings nationwide set up a potential Supreme Court decision that could determine the industry’s legal future.
The Ninth Circuit Federal Court is set to rule on whether sports event contracts offered by prediction markets qualify as “swaps” as determined by the federal Commodity Exchange Act and, if so, whether federal regulators overseeing these swaps preempt Nevada’s authority to regulate gambling within its borders.
Councils on behalf of the cases’ plaintiffs, Kalshi, Rohinhood, and Crypto.com, argued before judges for a broad definition of swaps, encompassing everything where “payment turns on the occurrence, not occurrence, or the extent of the occurrence of an event” tied to financial consequences. Because those contracts are traded on designated contract markets, lawyers said, federal law grants federal regulators exclusive jurisdiction, including on those contracts involving sporting events.
All three of the panel’s judges questioned the breadth of that definition, as well as the real-world applications of adoption.
Judge Ryan Nelson asked the plaintiffs' lawyers if Congress intended to transfer jurisdiction of sports betting away from the states and to the federal Commodities Futures Trading Commission. Over prediction markets’ continued push they were not gambling, Nelson said there was no distinction.
“It is sophistry to the ‘Nth’ degree,” Nelson said.
More context
The case is among the most prominent of the months-long legal battle between state gaming regulators and upstart prediction markets. Nevada is the only state to successfully enforce a prediction market ban authorized by the courts.
Prediction markets and the CFTC have maintained before Congress and in the courts that they have sole authority over these platforms. Federal authorities have argued event contracts on sports and political events are a form of derivatives trading akin to the stock market and are not subject to state regulations.
Nevada and other gaming states have argued sports event contracts are not different from legal sports betting, and their availability constitutes illegal gambling. These platforms don’t have to remit taxes or licensing fees or follow jurisdictional regulations in violation of state law, state officials have argued.
Reporter (just now): "Doesn't seem to be going well for the prediction markets, yeah"?
— Daniel Wallach (@WALLACHLEGAL) April 16, 2026
Me: "Understatement of the year."
Nevada’s attorneys leaned into the judges' skepticism during oral arguments Thursday, arguing the contracts are functionally identical to sports betting regardless of structure. Jessica Whelan of the Nevada Attorney General’s Office pointed to familiar sportsbook wagers, including spreads, parlays, and prop bets and said the platforms’ use of affiliated market-makers undermines claims that there is no “house.”
“These are sports bets,” Whelan said. “Everyone who sees them knows them.”
Though not as forceful as with the plaintiffs, the judges did question Nevada’s legal authority. Like lawyers for the prediction markets, the judges worried Nevada’s regulatory action against sports betting could extend to traditional federal regulated industries such as crop futures or stocks.
Lawsuits abound
The Nevada suit is among the most pressing of several dozen legal actions across a growing number of states.
Scores of state gaming regulators have moved against prediction market sites, including via cease-and-desist letters and legal action. The leading prediction markets have countered with their own legal challenges in many of these jurisdictions.
Early rulings have been mixed. Gaming regulators have pointed to the Nevada state court decision - now under challenge in Thursday’s hearing - that allowed them to block Kalshi as a legal victory.
But the Third Circuit Appeals court earlier this month prevented New Jersey gaming regulators from taking enforcement action against operators as the legal process plays out. Predication markets also touted a recent Arizona court ruling that will, at least temporarily, prevent the state from pursuing criminal charges.
Listening to the Ninth Circuit argument in the prediction markets cases and it’s pretty clear that this is headed to the Supreme Court.
— Thania Charmani (@ThaniaCh) April 16, 2026
The Ninth circuit seems poised to rule in favor of the states. During this very heated argument today, it became apparent that the court does…
The legal action shows no signs of slowing down. The CFTC has sued three states this month, alleging their cease-and-desist orders violated federal authority. Ohio, which is also ensnared in a protracted legal battle, proposed fining Kalshi $5 million for offering an illegal sportsbook.
Meanwhile Kalshi as well as rival Polymarket have accepted billions of dollars worth of event contracts and garnered corporate valuations exceeding $20 billion. Nevada officials believe these platforms could cost the state billions in lost tax revenues if they continue to operate.
The determination in the Ninth Circuit could have wide-reaching impacts on the industry in what stakeholders from both sides believe will be a final ruling before the Supreme Court. A ruling could hinge on whether the court resolves the case narrowly - potentially focusing on the CFTC’s existing regulations or the plaintiffs’ burden in seeking an injunction - rather than issuing a sweeping determination on the scope of federal preemption.
Judges gave no timeline for a ruling but said they understood the magnitude of the case and intended to have a decision shortly.
