Federal Regulator Eyes Supreme Court Fight Over Sports Prediction Markets

The Ninth Circuit Court of Appeals ruled Friday that federal commodities law does not prevent Nevada from applying its gaming regulations to sports event contracts offered on prediction markets. The decision came in cases brought by the Nevada Gaming Control Board against three platforms — Kalshi, Robinhood, and Crypto.com — that offer these contracts to users in the state.

Nevada's gaming regulator considers sports event contracts to be wagers requiring state licensing. The Board had sought to halt the platforms' operations in Nevada, arguing they were operating unlicensed gaming businesses.

This completely vindicates what we have been saying all along, Board Chairman Mike Dreitzer said. This is sports betting and needs to be properly regulated by the state.

The three platforms indicated they would seek further review of the decision. Kalshi noted that while the Ninth Circuit agreed federal law prevents states from regulating trading on federally licensed exchanges, the company believes CFTC regulations do not prohibit sports contracts and that the agency is working to clarify those rules.

Robinhood said it respectfully disagrees with the court's decision and intends to appeal. The company emphasised that the markets are federally regulated by the CFTC and offered through its registered Futures Commission Merchant.

The platforms and the CFTC had argued that event contracts are derivatives subject to exclusive federal oversight. The commission has filed suit against nine states to defend what it describes as its sole jurisdiction over prediction markets.

The CFTC told PYMNTS the Ninth Circuit correctly recognised that the Commodity Exchange Act grants exclusive jurisdiction to the federal regulator, preempting state regulation of swaps. However, the agency said the court incorrectly ruled on the classification of these contracts.

A derivative contract structured as a swap is a swap regardless of the underlying subject matter — the only exceptions in statute are onions and movie box office receipts, CFTC spokesperson Zach Fulton said. The Ninth Circuit erred today when it invented a new and atextual exception to the CEA.

The decision contradicts a ruling issued in March by another appeals court, creating what the CFTC characterises as a circuit split that requires Supreme Court resolution.

Shares of traditional sports betting operators surged in late Friday trading following the court's decision. DraftKings rose 7.0% while Flutter Entertainment climbed 7.4%.

Both stocks had faced pressure over the past year amid investor concerns that prediction markets could disrupt their online sportsbook businesses. The ruling appears to alleviate those worries by affirming state regulatory authority over sports-related wagering contracts.