As the battle concerning the regulation of prediction markets intensifies, leading operators hope to receive legal clarity from several appellate court decisions in the coming months.
Last week, a three-judge panel in San Francisco heard oral arguments in Nevada’s case against Kalshi, along with three other parallel cases involving the Silver State. Held before the US Court of Appeals for the Ninth Circuit, the hearings tackled thorny matters on federal preemption in cases pertaining to the legality of sports event contracts. The hearings were held on the heels of Kalshi’s victory before the Philadelphia-based Third Circuit earlier this month.
The four hearings on 16 April analysed Nevada’s state gaming laws in relation to those for Designated Contract Markets. DCMs operate in the same manner as most futures exchanges, by listing futures or option contracts based on an underlying commodity. The range of such commodities is broad –for instance, DCMs might offer trades on wheat futures that expire in June 2027, as well as futures related to picks in this year’s NFL Draft.
Across the country, courts are hearing arguments on whether the listing of sports event contract violates state laws on sports wagering. Detractors of prediction markets contend that a sports event contract does not fundamentally differ from a wager on sports, but results have varied. In a 2-1 decision on 6 April, the Third Circuit affirmed a preliminary injunction that blocks New Jersey from prohibiting Kalshi’s contracts.
A ruling against prediction markets in the Ninth Circuit would represent a circuit split on the appellate level, potentially paving the way for the case to be taken up by the US Supreme Court.
Breaking down the hearing
Nevada, one of the nation’s largest gambling markets, recorded a 10-year low for handle during the Super Bowl this year. The handle of $133.8 million represented an 11% decline from wagering volume from 2025. One of the main drivers appears to be the emergence of prediction markets such as Kalshi, Robinhood and Crypto.com. The state has waged a full-court press against sports-event contracts by deeming the trades a violation of state law.
The Ninth Circuit consolidated four cases into one hearing that lasted nearly 150 minutes. The three-justice panel also heard appeals in cases involving Robinhood Derivatives, LLC and North American Derivatives Exchange Inc (Crypto.com). The biggest fireworks arguably took place in an exchange between US Circuit Judge Ryan Nelson and Shay Dvoretzky, an attorney for Crypto.com.
Dvoretzky argued that the Commodity Exchange Act preempts Nevada law applied to swap trading on a DCM and gives the Commodity Futures Trading Commission exclusive jurisdiction over DCM regulation. Nelson pressed the attorney on the distinction between a sports wager placed at Caesars Sportsbook and a sports event contract listed on a DCM.
The attorney replied that wagers placed at Caesars are sports bets against the house. Conversely, he argued that sports event contracts are trades placed on an open market with a financial intermediary that serves as a clearinghouse. The former, he argued, is a bet, while the latter allows a party to hedge risk. Nelson appeared unpersuaded.
“This is sophistry to the Nth degree,” Nelson told Dvoretzky. “I don’t understand how you can say those are different.”
The CFTC, which filed an amicus brief on behalf of prediction markets in Nevada, also appeared at last week’s hearing.
Odds on SCOTUS to take up case
During the spring conference circuit, there has been strong consensus that the case is likely headed to the Supreme Court. When the nation’s highest court grants certiorari, it means that the court has agreed to hear an appeal. Speaking at the East Coast Gaming Congress last week, former New Jersey Governor Chris Christie predicted such an outcome.
Milbank partner Josh Sterling, an attorney who has represented Kalshi, also addressed the topic at a prediction market webinar last month. When asked if he has placed odds on if the case will be taken up by SCOTUS, Sterling demurred.
Nevertheless, he indicated the court may decide to hear the case if there is a split between a state Supreme Court and a circuit court. Moreover, Sterling noted that prediction markets can be viewed through a broader lens that shows how sports, culture and politics are a part of everyday life. For fundamental questions on “textual interpretation”, Sterling indicated that SCOTUS may eventually settle a multibillion-dollar conundrum.
“In this context, the court is more apt to take it up,” Sterling said.
Ironically, Polymarket allows users to trade on the likelihood that the Supreme Court will hear the case. As of Friday, there were odds of 39% that the court would grant certiorari by 31 December ($100 to win $245).
There are also odds of 11% that SCOTUS will accept the case by 31 July. According to Reuters, the odds that the court will decide by year’s end to hear the case reached as high as 64%.
Path to certiorari
Technically speaking, a case meets the qualifications of “Yes” by Polymarket’s contract standards if it addresses at least one of the following:
- whether contracts based on sports event outcomes constitute regulated derivatives under the Commodity Exchange Act
- whether federal regulation via the CFTC preempts state-level gambling laws as applied to such contracts, or
- whether sports event contracts offered by federally licenced markets may legally be offered, restricted or prohibited by federal or state authorities.
In the aftermath of the Ninth Circuit hearings, several attorneys from the firm Katten Muchin Rosenman LLP wrote a review of the recent appellate cases. The ruling in the Third Circuit held that the Commodity Exchange Act preempts state laws with regard to regulating sports-related event contracts. A ruling for Nevada in the Ninth Circuit could be entirely opposite, essentially banning the contracts across the state.
“With federal appellate courts already divided on preemption, a ruling against the platforms here would present a clear path to Supreme Court certiorari,” the attorneys wrote.
Another prominent firm also weighed in on the topic. If a split materialises, certiorari petitions could be filed by early 2027, attorneys from Holland & Knight wrote in a brief. Under that timeline, the Supreme Court could grant review at some point during the October 2027 term. The timeline is critical, since it would enable SCOTUS to deliver a ruling before the 2028 US presidential election.
After hearing the appeals, the Ninth Circuit panel said last week it is expected to rule within a period of 60 to 120 days.
Matt Rybaltowski
Matt is primarily responsible for long-form feature coverage on complex sports betting scandals. He also provides coverage on finance, M&A and other technological developments.
Original article: https://igamingbusiness.com/legal-compliance/prediction-market-appellate-cases-circuit-split-2026/
