The U.S. Court of Appeals for the Ninth Circuit ruled unanimously on August 28 that Kalshi's sports event contracts do not qualify as swaps under federal commodity law and therefore remain subject to state gambling regulation. The decision reverses a lower court injunction that had allowed the exchange to offer the contracts in Nevada and creates a direct conflict with an April ruling by the Third Circuit Court of Appeals.
The three-judge panel, writing through Judge Ryan D. Nelson, concluded that the contracts are bets regardless of how they are labeled. "The substance of the sports event contracts offered on Kalshi's DCM is sports gambling," Nelson wrote, noting that the contracts create risk for ordinary consumers rather than helping institutions hedge against existing risk.
The ruling also found that accepting Kalshi's position would create a constitutional problem by effectively delegating gambling regulation from states and tribes to the Commodity Futures Trading Commission. The Ninth Circuit's decision contradicts the Third Circuit's April conclusion that the contracts likely qualify as swaps and are preempted from state regulation.
This circuit split gives the Supreme Court grounds to intervene. New Jersey, which has been litigating against Kalshi, requested extended deadlines specifically to await appellate decisions that could create such a conflict. The state now has until September 3 to petition the Supreme Court for review.
The practical stakes are significant. Nevada has pursued penalties of $120,000 per day for contracts accessible within its borders. Twenty states are currently in active litigation over the question, and 44 states signed a letter last month disputing the CFTC's authority over sports event contracts.
The CFTC argued in response that the panel "erred" by inventing an exception to the Commodity Exchange Act, contending that a derivative contract structured as a swap is a swap regardless of subject matter. Kalshi said it would seek further review and maintains that CFTC regulations, as written, do not prohibit sports contracts.
Shares in DraftKings rose 7 percent following the ruling, while Flutter Entertainment gained more than 6 percent. Robinhood, which offers event contracts through Kalshi's market, said it plans to appeal the decision.
