MercoPress. South Atlantic News Agency

Prediction Markets Force US Courts to Decide Who Regulates a Bet

The question now before several United States appellate courts is not whether Americans may wager on sporting events. It is which government gets to say so.

On one side sits the Commodity Futures Trading Commission, a federal derivatives regulator, and a handful of exchanges arguing that a contract on the outcome of a basketball game is a financial instrument under its exclusive jurisdiction. On the other sit state gaming regulators, tribal governments and more than two dozen state attorneys general, arguing that a bet remains a bet regardless of the paperwork wrapped around it.

The dispute has produced conflicting rulings across at least four federal circuits, and officials involved expect it to reach the Supreme Court.

The Contracts and the Claim

Kalshi operates a designated contract market licensed by the CFTC, the same category of venue used to trade commodity futures. Since early 2025 it has listed event contracts on sporting outcomes, and competitors including Crypto.com and Robinhood Derivatives have followed.

The legal argument is narrow and consequential. Kalshi contends its contracts are swaps within the meaning of the Commodity Exchange Act, that the Act grants the CFTC exclusive jurisdiction over swaps traded on such a market, and that federal law therefore displaces state gambling statutes entirely.

The Distribution Asymmetry

The practical consequence is visible in app stores, and it explains much of the commercial urgency.

Because prediction market operators present themselves as financial platforms rather than gaming operators, their applications distribute nationally without state-level geofencing. Licensed sportsbooks and casino operators cannot do that. They must restrict access to jurisdictions where they hold a licence, and platform rules require the same. One recent survey of mobile gambling applications tested 15 brands across iPhone and Android and found that most never appear in the App Store at all, with the few that do restricted for the majority of users. A single nationwide app against a patchwork of state-limited ones is a considerable structural advantage, and it is the advantage state regulators are attempting to remove.

The First Appellate Ruling

On April 6, 2026, the Third Circuit Court of Appeals became the first federal appeals court to address the question, ruling in Kalshi's favour in KalshiEX LLC v. Flaherty.

The 2-1 opinion, written by Judge David Porter and joined by Chief Judge Michael Chagares, held that sports event contracts are swaps under the Commodity Exchange Act and that the Act preempts New Jersey's gambling laws through both field preemption and conflict preemption.

The ruling is narrower than the headlines suggested. It affirmed a preliminary injunction, finding a reasonable likelihood of success rather than deciding the merits, and the case returns to the district court.

The dissent identified a genuine difficulty. CFTC Rule 40.11 prohibits designated contract markets from listing contracts tied to gaming, which the dissenting judge argued undercuts the claim that federal and state law are in irreconcilable conflict. The federal regulator has a rule against precisely the product being defended.

The Ninth Circuit and a Probable Split

Ten days after the Third Circuit ruled, the Ninth Circuit heard consolidated argument in San Francisco in cases brought by Kalshi, Crypto.com and Robinhood Derivatives against the Nevada Gaming Control Board.

The posture there is inverted. The district court below ruled against all three platforms, finding that sports event contracts are not swaps, a conclusion directly opposed to the Third Circuit's. During the April 16 hearing the three-judge panel of Ryan Nelson, Bridget Bade and Kenneth Lee appeared sceptical of the platforms' arguments. Judge Nelson said the panel would rule as quickly as it could. No decision had issued as of late July.

Cases also remain pending in the Fourth and Sixth Circuits. Speaking at the National Council of Legislators from Gaming States summer meeting, Nevada first assistant attorney general Craig Newby and West Virginia attorney general JB McCuskey both said they expect the Supreme Court to resolve the preemption question by 2027.

Enforcement Continues Regardless

State authorities have not waited for appellate clarity.

On March 20, 2026, Judge Jason Woodbury of Nevada's First District Court granted the Gaming Control Board a temporary restraining order barring Kalshi from offering sports, election and entertainment contracts in the state. He found the products fall within Nevada's statutory definitions of a sports pool and a percentage game, and rejected the exclusive jurisdiction argument. The same court had previously issued restraining orders against Coinbase and Polymarket.

The federal government has taken the opposite side, and taken it actively. On April 2, 2026, the CFTC filed its own preemption actions against Arizona, Connecticut and Illinois. In Arizona the strategy worked: on May 5 District Judge Michael Liburdi granted a preliminary injunction blocking the state attorney general from prosecuting a twenty-count criminal information filed against Kalshi in March.

Tribes and Congress

A second front opened over tribal sovereignty. On July 10 three California tribes, Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians and Picayune Rancheria of the Chukchansi Indians, argued before the Ninth Circuit that Kalshi's contracts should be barred from their lands under the Indian Gaming Regulatory Act. Their appeal drew an amicus brief from California, Massachusetts, 25 further states and the District of Columbia. A Wisconsin court reached the opposite conclusion in a parallel claim brought by the Ho-Chunk Nation.

Legislators have begun to engage. On March 23, 2026, Senators Adam Schiff and John Curtin announced a bill that would prohibit CFTC-regulated entities from listing contracts tied to sporting events and bar casino-style games from prediction market platforms. The CFTC's own rulemaking on event contracts closed for comment on April 30.

The Contrast With Brazil

For readers in the region the comparison is instructive, because Brazil confronted a version of the same problem and resolved it differently.

Brazil legislated. Law 14.790 of December 2023 created a federal licensing regime for online betting, administered by the Finance Ministry, and the regulated market opened on January 1, 2025. The jurisdictional question was settled by statute before the market existed, at the cost of several years of legislative argument.

The United States is instead discovering the boundary through litigation, one circuit at a time, with a federal agency suing states and states prosecuting exchanges while the underlying product trades in most of the country. Both are federal systems. Only one chose to answer the question in advance.