A New Legal Test for Prediction Markets

The legal battle surrounding U.S. prediction markets intensified after the Ninth U.S. Circuit Court of Appeals ruled against Kalshi, Crypto.com and Robinhood in their efforts to prevent Nevada regulators from restricting sports-related event contracts. The court determined that the contracts at issue were not federally regulated swaps because they effectively constituted sports betting. The decision places a major question of regulatory jurisdiction at the center of an increasingly important financial and gaming market.

The ruling comes as prediction platforms seek to establish event contracts as financial products regulated at the federal level rather than gambling products governed by individual states. The distinction is strategically important because federal oversight by the Commodity Futures Trading Commission could provide these platforms with access to a national market, while state-level gambling laws could impose substantially different restrictions across jurisdictions.

Conflicting Courts Raise the Stakes

The most significant consequence of the Ninth Circuit decision is that it conflicts directly with a ruling from the Third Circuit earlier this year. In April, the Third Circuit concluded that sports-related event contracts were swaps subject to CFTC jurisdiction. The competing interpretations create what legal experts describe as a classic circuit split, increasing the probability that the Supreme Court will eventually be asked to determine which regulatory framework applies.

The CFTC has strongly defended its authority, arguing that a derivative contract structured as a swap remains a swap regardless of the underlying subject matter, subject to the exceptions established under federal law. Nevada, meanwhile, maintains that labeling a sports wager an event contract does not transform its fundamental character. The competing arguments highlight a broader regulatory challenge created by financial products that operate at the intersection of markets, technology and traditional gambling.

Implications for Prediction Markets and Sportsbooks

The dispute has implications beyond the companies directly involved. A federal framework could allow prediction-market operators to expand sports-related contracts nationally, potentially increasing competition for established sportsbooks. The reaction in financial markets reflected that possibility, with DraftKings shares rising 7% and Flutter Entertainment gaining more than 6% following the ruling. Both companies have faced concerns that prediction markets could disrupt traditional sports wagering while simultaneously developing their own prediction-market offerings.

For investors and market participants, the regulatory outcome could become as important as user growth or transaction volumes. A decision favoring federal jurisdiction could accelerate the expansion of event contracts, while broader state authority could restrict market access and increase compliance costs.

What Comes Next?

Robinhood has indicated that it plans to appeal, while the conflicting appellate decisions make further judicial review increasingly likely. The eventual resolution could determine whether sports event contracts become a broadly accessible financial-market product or remain subject to the fragmented state-by-state framework associated with gambling.

For the prediction-market industry, the next stage of the dispute will therefore be closely watched not only by platforms and regulators, but also by sportsbooks and investors assessing the competitive structure of a rapidly developing market.