Ninth Circuit Rules States Can Regulate Prediction Markets as Gambling, Setting Up a Likely Supreme Court Clash
The Ninth Circuit Court of Appeals ruled on August 28, 2026 that states may regulate prediction-market platforms like Kalshi under their own gambling laws, rejecting the company's argument that federal law overrides state oversight. The decision in KalshiEX, LLC v. Assad, case No. 25-7516, was issued as a published opinion and now serves as binding precedent within the Ninth Circuit. (Ninth Circuit opinion)
Prediction markets let users buy and sell contracts whose value depends on the outcome of future events, from election results to sports scores. Kalshi, which operates as a federally designated contract market overseen by the Commodity Futures Trading Commission (CFTC), had sued the Nevada Gaming Control Board, its members, the State of Nevada, and the Nevada Attorney General, seeking a preliminary injunction to block the state from enforcing its gambling regulations against the platform. The suit followed Nevada's decision in February to sue Kalshi for operating a sports gambling market without the required state license. The Ninth Circuit denied the relief Kalshi sought, holding that state gambling regulators and attorneys general retain authority to treat prediction markets as gambling operations subject to licensure. (Engadget, Reuters)
The ruling directly conflicts with a separate federal appeals court decision from April 2026, where a panel held that New Jersey lacked authority to regulate Kalshi's prediction markets because the CFTC holds federal oversight of the platform. That earlier decision was framed as a win for Kalshi and the CFTC's exclusive jurisdiction over designated contract markets. (Bloomberg)
The split creates a genuinely unsettled legal landscape. On one side, the April ruling said the CFTC's authority supersedes state gambling law. On the other, the Ninth Circuit now says states can classify the same activity as gambling and regulate it accordingly. The tension between these holdings is not a narrow doctrinal disagreement; it goes to whether prediction markets are, at their core, federally regulated financial derivatives or state-regulated gambling products.
The CFTC itself has entered the fray, suing three states that attempted to regulate Kalshi and Polymarket independently. That federal action reflects the agency's position that state-by-state regulation conflicts with the Commodity Exchange Act's framework for designated contract markets. (Engadget)
Kalshi faces legal pressure from multiple states beyond Nevada. New York officials sued the company for potentially billions of dollars, describing it as an "illegal, unlicensed gambling operation" and seeking to halt its operations and force forfeiture of profits. (AP News) Rhode Island has filed its own action, prompting counter-litigation from Kalshi. Arizona and Connecticut have also initiated proceedings; Connecticut's attorney general accused Kalshi of running an unlicensed sports betting operation and moved to ban the platform in the state. (Engadget, CT Mirror)
The Ninth Circuit's opinion carries particular weight because it was published rather than issued as a memorandum disposition. Published opinions within the circuit establish binding precedent for lower courts and future panels, meaning that any prediction-market operator operating within the Ninth Circuit's jurisdiction — which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, and the Northern Mariana Islands — now faces a legal environment where state gambling regulators can assert authority. The court, established in 1891 and headquartered in San Francisco, is the largest federal appellate circuit by geography and population served. (Ninth Circuit)
The broader context here is that the circuit split virtually guarantees Supreme Court review if the conflicting rulings are not reconciled at the appellate level first. The core question, whether a CFTC-regulated designated contract market can simultaneously be subject to state gambling licensure, has no obvious doctrinal middle ground. Either the CFTC's regulatory regime is exclusive, or states retain their traditional police power over gambling, and the answer determines whether platforms like Kalshi and Polymarket can operate nationally under a single federal framework or must navigate a patchwork of state-level compliance.
The stakes extend beyond Kalshi. Polymarket, which the CFTC also targeted in its suit against three states, faces the same regulatory ambiguity. Any platform offering event-based futures contracts that resemble sports betting or wagering will need to assess exposure under both federal commodities law and state gambling statutes. For an industry that has operated on the assumption that CFTC designation provides a shield against state regulation, the Ninth Circuit's ruling is a direct challenge to that premise.
For now, Kalshi's options within the Ninth Circuit are an en banc rehearing, in which a larger panel of the circuit's judges would revisit the case, or a petition for certiorari to the Supreme Court. Given the circuit conflict already on record, the latter path appears more likely to resolve the fundamental jurisdictional question.
