Prediction markets suffered a legal setback on Friday as judges in the Ninth Circuit unanimously ruled against Kalshi. With the Third Circuit previously siding with the company, this creates a Circuit split that could lead the case to the Supreme Court.
Like most things, you can wager on whether the Supreme Court will hear the case at prediction markets. Polymarket allows users on its international platform to predict when SCOTUS will accept a sports event contract case. The chances jumped from 29% to 52% after news of the ruling broke.
Almost $1 million has now been traded in the market, which also gives SCOTUS a 6% chance of accepting the case before October 31.
CEA Does Not Preempt State Gaming Laws, Rule Judges
All three Ninth Circuit judges ruled against Kalshi. The company appealed to the Ninth Circuit after Nevada judges issued an injunction against the operator, resulting in a block on users in the state.
Kalshi insists that the Commodity Exchange Act (CEA) should allow it to offer the wide range of markets it has on site, including sports. However, judges have disagreed that the CEA allows sports markets, as a rule states that contracts related to gaming can be considered contrary to the public interest.
Sen. Chris Dodd, one of the authors of the Dodd-Frank Act, confirmed that Congress had no intention of allowing sports markets when amending the CEA in 2010.
The panel of three judges in the Ninth Circuit similarly decided that the CEA does not override a state’s gambling laws.
“The panel concluded that the CEA likely does not preempt Nevada’s gaming regulations as applied to Kalshi’s sports event contracts,” stated the ruling.
Ambiguity Remains As CFTC Moves To Clarify Rules
Judge Kenneth Kiyul Lee did leave some doubt over whether the CEA prohibits sports contracts, however. He noted the ambiguity in the Special Rule in the CEA.
“The Special Rule provision says that the ‘Commission may determine that [certain contracts or swaps] are contrary to the public interest if’ they ‘involve . . . gaming,’” stated the ruling.
It added, “The statute thus appears to give the CFTC discretion whether to ban altogether gaming contracts. Put another way, the statute does not seem to categorically bar all gaming contracts, despite the text and contextual clues suggesting otherwise. So perhaps some unique sports events can be part of a swap trade if they meet the statutory requirements.”
Under the current administration, the CFTC has strongly opposed state efforts to prohibit sports prediction markets, claiming exclusive jurisdiction over licensed operators.
It has also proposed new rules that would more explicitly allow sports contracts. Kalshi and other prediction markets have supported these revisions, while states, tribes, and other stakeholders in the sports betting industry have opposed.
All Sides Eager For Supreme Court Resolution
CFTC spokesperson Zach Fulton said the Ninth Circuit misread the statute and regulations, and said the case is “now teed up a circuit split that calls out for resolution by the Supreme Court.”
Kalshi spokesperson Dani Lever also said the company will seek further review of the Ninth Circuit’s ruling. A Robinhood spokesperson similarly told CasinoBeats that the company “respectfully disagrees” with the decision and intends to appeal.
In May, New Jersey state authorities indicated they intended to appeal the Third Circuit ruling to the Supreme Court. In the Third Circuit, judges ruled 2-1 that Kalshi was likely to succeed with its argument that the CEA preempts state gambling laws and allows its sports markets. Since then, almost all rulings have gone against Kalshi, resulting in site blocks in Michigan, Washington, and Nevada.
New Jersey has until September 3 to petition the Supreme Court for a review of the Third Circuit ruling.
“Given the conflict and broader implications for prediction-market regulation, Supreme Court review is now substantially more plausible,” said former CFTC regulator Carl Kennedy.
However, Kennedy, together with associates at his legal firm Katten, highlighted that the rulings in the Circuit cases have been on preliminary judgments. The Supreme Court may therefore “wait for a more procedurally developed case.”
Legal Experts Split on Supreme Court Prediction
Like the Third and Ninth Circuit judges, legal experts are divided on how the Supreme Court will eventually rule. Gaming lawyer Daniel Wallach previously said he makes it a 70-80% chance that judges will rule against prediction markets.
He also said that the Ninth Circuit ruling could “doom the CFTC’s future rulemaking on sports-event contracts.” In a post on LinkedIn reacting to the judgment, he noted several instances where the court “characterized sports-event contracts as ‘sports gambling’,” and said this is not a good sign for prediction market operators.
In one instance, the Ninth Circuit ruling states, “The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps.”
It goes on to add, “The CFTC is not a national gambling regulator. No one suggested it was until over a decade after the law was passed.”
Other lawyers are less sure of how the Supreme Court will rule. Law professor Melinda Roth told CasinoBeats she sees it as more of a 50-50 shot. She said the composition of the court may change before a case is heard, which may still be more than a year away.
It took several years for the court to hear a sports-betting case, so there may yet be a long wait for a prediction-market case. The PASPA ruling in 2018 authorized states to regulate sports betting, but that does not necessarily indicate how the Supreme Court will rule on prediction markets, Roth added.
Judges ruled in favor of Kalshi in 2024, allowing the company to continue offering election markets. On that occasion, the operator was fighting against the CFTC. Now, with the agency’s full backing, it is in a stronger position.
While Polymarket offers wagering on when SCOTUS will accept the case, there is no market as yet on how the court will rule. In the lead-up to the case, that may come later.
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