Kalshi has suffered yet another setback in its legal battle over sports event contracts in the United States.
Namely, on Wednesday, October 4, the Ninth Circuit Court of Appeals decided to reject the company’s request for a rehearing of its Nevada case, thus leaving in place a ruling that enables state gaming regulators to pursue enforcement action against the operator.
A day earlier, on November 3, the US Court of Appeals for the Second Circuit denied the company’s request to temporarily block New York and Connecticut officials from enforcing gambling laws on sports event contracts.
Unanimous Call
The Ninth Circuit court’s decision was unanimous, denying both a panel rehearing and a rehearing en banc, which would have sufficed to bring the case before the full appeals court. No judge requested a vote on whether the matter should receive full-court consideration.
The decision leaves Kalshi with 90 days to ask the US Supreme Court to review the case.
The company, represented by attorney Paul Clement, could also seek to coordinate its appeal with separate litigation currently pending before the Third Circuit, which has also become part of the wider legal dispute over prediction markets.
Nevada Enforcement, Still Possible
The latest decision follows an earlier Ninth Circuit ruling that upheld the dissolution of a preliminary injunction protecting Kalshi from enforcement by Nevada gaming regulators.
The court determined that sports event contracts offered by Kalshi did not qualify as swaps according to the Commodity Exchange Act’s (CEA) definition, which means that the company could not rely on federal derivatives regulation to shield those contracts from state gambling laws.
Kalshi challenged that interpretation in a 78-page petition, arguing that the ruling exposed it to civil and criminal liability despite operating under the supervision of the Commodity Futures Trading Commission (CFTC).
“The panel held that, although Congress granted the (CFTC) ‘exclusive jurisdiction’ over instruments traded on federally designated contract markets (DCMs), like Kalshi, state may nonetheless regulate sports event contracts the CFTC has permitted to be traded on Kalshi.
As a result, Kalshi now stands exposed to civil and criminal liability, even though it is abiding by federal law and the mandate of its exclusive federal regulator,” the brief said.
At the heart of the dispute is whether prediction market contracts, particularly those tied to sporting events, fall exclusively under federal oversight or can also be regulated as gambling products by individual states.
CFTC Rulemaking Adds Another Dimension
The legal battle is unfolding at a time when the CFTC is busy working on fresh regulations governing event contracts.
On October 9, the federal agency issued a Notice of Proposed Rulemaking alongside an Interim Final Rule intended to clarify its jurisdiction over event contracts, including sports-related markets.
Public comments on the proposed regulations are due November 18.
Kalshi could potentially benefit from waiting for the CFTC process to advance before seeking Supreme Court review. Nonetheless, the latest appeals court decision means its Nevada dispute remains unresolved, with no preliminary injunction preventing state enforcement.