Ninth Circuit Doubts Prediction Markets Can Evade Gambling Laws

A Ninth Circuit panel on April 16 heard a consolidated appeal over whether event-based contracts offered by Crypto.com, Robinhood and Kalshi qualify as “swaps” under the Commodity Exchange Act and so are federally regulated, preempting Nevada gambling laws.

Judges repeatedly pressed the exchanges and the Commodity Futures Trading Commission on whether event contracts differ in substance from traditional sports wagers and on how CFTC Rule 40.11 applies to those products. The court focused on whether the contracts’ market structure changes the nature of a bet.

U.S. Circuit Judge Ryan Nelson questioned the exchanges’ defense of market structure, telling counsel for Crypto.com that the distinction amounted to “sophistry to the nth degree… It’s still the house.” Nelson used a casino analogy to press the point, asking how a contract on an exchange differs in practice from a roulette bet.

Counsel for the exchanges argued the contracts function through trading mechanisms and produce price discovery rather than bookmaker odds. Kalshi’s attorney acknowledged overlapping outcomes with bets but emphasized differences in execution and the role of multiple market participants instead of a single house.

Nevada’s attorney, Nicole Saharsky, challenged that view and pointed to the state lottery as an example that gambling does not always require a traditional bookmaker. She told the court that some market makers can effectively act as the house and warned that federal preemption would be “a severe intrusion on state sovereignty.”

The CFTC’s attorney, Jordan Minot, told the panel the agency treats event contracts as swaps and therefore within federal oversight. He drew a distinction between casino-style gaming and wagers on individual sporting outcomes, saying the agency does not consider Rule 40.11 to apply to traditional sportsbooks.

Rule 40.11 was a central issue at argument. Judge Nelson read the rule’s text aloud, noting it says a registered entity “shall not list for trading or except through clearing any of the following… terrorism, assassination, war, gaming.” He questioned the exchanges’ reliance on self-certification followed by later review and asked why the platforms did not seek prior approval under the rule when they exposed large sums to risk. “The language says it can’t go up. I don’t know how you can read it differently,” Nelson told counsel.

The panel asked for concrete examples, including hypothetical contracts tied to casino-style outcomes, to test whether claimed structural differences would change how the products should be categorized. Counsel offered competing readings of the Dodd-Frank-era definition of swaps and whether Congress intended to shift jurisdiction over sports betting to the CFTC.

The Ninth Circuit’s decision could affect the availability of event contracts in Nevada and other states. If the panel rules for Nevada, states could bar event contracts they classify as gambling. If the exchanges and the CFTC prevail, platforms may continue offering event-based contracts without state approval. The case may proceed to the U.S. Supreme Court, as other circuits have issued differing rulings on similar questions.