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The legal fight over sports-related prediction-market contracts has moved quickly from regulatory novelty to a full-blown federal-state jurisdictional dispute. On August 28, 2026, the U.S. Court of Appeals for the Ninth Circuit held in KalshiEX, LLC v. Assad that Nevada may continue enforcing its gaming laws against Kalshi’s sports-related event contracts because those contracts likely fall outside the category of swaps subject to the Commodity Futures Trading Commission’s (CFTC) exclusive jurisdiction under the Commodity Exchange Act (CEA).

The decision directly conflicts with the Third Circuit’s April 2026 ruling in KalshiEX, LLC v. Flaherty, which held that the CEA likely preempts New Jersey’s attempt to regulate similar sports-related contracts offered on a CFTC-regulated designated contract market (DCM). That split substantially raises the stakes for prediction-market operators, state gaming regulators, exchanges, investors, and companies evaluating whether event contracts are becoming a new compliance frontier.

Why the Ninth Circuit Decision Matters

Kalshi argued that its sports contracts are federally regulated derivatives traded on a CFTC-registered exchange and therefore fall within the CFTC’s exclusive jurisdiction, preempting the application of state gaming laws. The Ninth Circuit rejected that argument at the preliminary injunction stage, concluding that Kalshi had not shown its sports contracts qualify as “swaps” under the CEA. The court emphasized that the contracts appeared to function more like traditional sports wagers than risk-management instruments because they did not hedge preexisting commercial risk, and any downstream economic consequences associated with sporting events were insufficient to satisfy the CEA’s requirement that swaps be tied to a potential financial, economic, or commercial consequence.

The court also rejected Kalshi’s contention that the CEA’s self-certification process for listing event contracts and the “Special Rule” (which authorizes the CFTC to prohibit event contracts involving certain enumerated activities, including unlawful activity, terrorism, assassination, war, gaming, or a similar activity designated by the CFTC, if the CFTC determines that the contracts are contrary to the public interest) effectively authorized the contracts notwithstanding their gaming-related nature. According to the panel, because the CFTC has not yet adopted its June 2026 proposed amendments to Regulation 40.11, the current regulation bars the listing of gaming-related contracts, including sports contracts, on DCMs.

The decision reflects the court’s reluctance to infer federal preemption of state gambling regulation absent a clear statutory basis, particularly where the contracts at issue had not been shown to fall within the CFTC’s exclusive jurisdiction under the CEA.

The Circuit Split

The Ninth Circuit’s approach stands in sharp contrast to the Third Circuit’s decision in Flaherty. There, a divided panel affirmed a preliminary injunction preventing New Jersey from enforcing its gambling laws against Kalshi’s sports contracts. The Third Circuit treated those contracts as swaps within the CEA’s broad event-based definition and concluded that both field and conflict preemption likely barred state regulation.

The result is a clean and consequential split. In the Third Circuit, Kalshi has appellate support for the position that sports contracts traded on a CFTC-registered exchange are federally protected from state gaming enforcement. By contrast, in the Ninth Circuit, Nevada (and other states in the Circuit) may proceed under state gaming laws because the court held that sports contracts likely fall outside of the CEA’s swap framework. Additional appeals raising overlapping questions regarding federal preemption and the scope of CFTC authority over event contracts remain pending in the Second, Fourth, and Sixth Circuits, making further fragmentation possible before the U.S. Supreme Court or Congress provides clarity.

What Comes Next

The circuit split increases the likelihood of Supreme Court review, especially if the pending appeals in the Second, Fourth, and Sixth Circuits deepen or complicate the divide. New Jersey’s anticipated certiorari petition to the Supreme Court in Flaherty is due by September 3, 2026, and the Supreme Court’s next term starts on October 5, 2026.

For now, prediction-market operators and market participants face a patchwork environment. Product availability, customer access, and enforcement risk may vary by state and circuit while courts and regulators continue to test the boundary between derivatives regulation and gaming oversight.