Ninth Circuit ruling raises legal risk for prediction markets in U.S. sports contracts dispute

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Ninth Circuit prediction markets ruling

Highlights

Ninth Circuit Court of Appeals rules sports-related event contracts are sports bets, not swaps, denying injunctive relief to Kalshi, Crypto.com, and Robinhood.
The ruling creates a circuit split, as it contradicts the Third Circuit's decision that only the CFTC has jurisdiction over sports-related event contracts.
DraftKings shares climb 7% and Flutter Entertainment rises over 6% after the decision, signaling investor relief at enhanced state regulatory power over sports-event contracts.

Court decision deepens jurisdiction clash

As reported by CNBC, the Ninth Circuit Court of Appeals rules that sports-related event contracts are not swaps, denying requests from Kalshi, Crypto.com and Robinhood for injunctive relief against Nevada regulators.

The court concludes that the contracts at issue are sports bets rather than derivatives regulated exclusively by the Commodity Futures Trading Commission. Nevada has argued that the offerings amount to gambling outside the state’s gaming framework, while the platforms and the CFTC maintain that event contracts are federally regulated derivatives.

The ruling conflicts with an early April decision by the Third Circuit Court of Appeals, which finds that only the CFTC has jurisdiction over sports-related event contracts. Joshua Mitts, a professor at Columbia Law School, says the opposing appellate decisions amount to a classic circuit split, a type of legal conflict that often reaches the Supreme Court.

Market implications for betting and trading platforms

The decision adds pressure to prediction market operators as they face challenges from states that view sports event contracts as betting products rather than financial instruments. The CFTC has sued nine states in defense of what it says is its exclusive authority to regulate prediction markets.

Shares of listed online sportsbook companies rise after the ruling, reflecting investor relief that state regulators may retain more power over sports-related contracts. DraftKings gains 7%, while Flutter Entertainment, the parent company of FanDuel, climbs more than 6%.

Kalshi, Crypto.com, Robinhood, the CFTC and the Nevada Attorney General’s office do not immediately respond to requests for comment.

The regulatory dispute over sports-related prediction markets has been widening as states and federal authorities clash over who should oversee the sector. In our earlier article, we noted that Donald Trump Jr., an adviser to Kalshi and Polymarket, urged Republican state attorneys general not to challenge the industry and argued that federal regulators should take the lead, as the CFTC pursues lawsuits against nine states to assert its authority.

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