Ninth Circuit Questions If Prediction Markets Are Gambling

A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit heard argument on April 16 over whether exchange-traded event contracts offered by North American Derivatives Exchange Inc. (Crypto.com), Robinhood and Kalshi are federal “swaps” under the Commodity Exchange Act and therefore beyond state gambling regulation.

Judges pressed the exchanges and the Commodity Futures Trading Commission on whether the contracts differ in substance from traditional sportsbook wagers and whether CFTC Rule 40.11 allows listing such products without prior agency approval. Judge Ryan Nelson repeatedly questioned the exchanges’ distinction between their products and ordinary bets, telling counsel, “This is sophistry to the nth degree… It’s still the house.” He compared certain exchange contracts to casino wagers and asked how setting odds and betting on outcomes could be meaningfully different.

Counsel for the platforms defended the contracts as market instruments. Attorneys said trading on exchanges produces price discovery and that outcomes are determined by market participants rather than a single bookmaker. Shay Dvoretzky, representing Crypto.com, cited the Dodd-Frank-era definition of swaps to argue that contracts tied to an event can fall under the CEA. Dvoretzky acknowledged there was no explicit 2010 statement transferring sports-gambling authority from states to the CFTC.

The CFTC’s attorney told the court the agency treats event contracts as swaps and that states cannot reclassify such contracts as gambling to avoid federal oversight. The attorney distinguished “gaming” as casino-style activity and said the agency does not view single sporting-event outcomes the same way.

Rule 40.11 became a focal point. The rule lists categories-such as terrorism, assassination, war and gaming-that registered entities may not list for trading without prior approval. Judge Nelson read the provision aloud and questioned the exchanges’ reliance on post-listing review. Robinhood’s counsel argued Rule 40.11 allows self-certification followed by agency review; the judge said the rule’s plain text prohibits listing those categories without advance approval and asked why platforms with large volume had not sought that review first.

Nevada’s attorney urged the court to preserve state authority over gambling, warning that treating event contracts as swaps would make the CFTC the primary regulator of many sports-related wagers. Nevada argued that if all sports bets qualify as swaps, state-regulated sports betting could be displaced. The panel asked whether the case required a broad outcome or could be resolved by distinguishing traditional sports bets from narrowly defined event contracts.

The Ninth Circuit’s decision will determine whether the contested contracts must comply with state gambling laws in Nevada and other states. Courts in other circuits have reached different conclusions on related issues, leaving the path for further appeals open.