States can regulate prediction markets as gambling, federal appeals court rules

By Marshall Cohen, CNN

(CNN) — A federal appeals court ruled Friday that states can regulate prediction markets like gambling, dealing a major blow to the booming industry.

There are still related lawsuits pending across the country, and legal experts believe the matter will ultimately be settled by the Supreme Court. But Friday’s ruling from the Ninth Circuit Court of Appeals is the largest courtroom victory to date for the states as they seek to regulate prediction sites.

The 3-0 ruling came from a panel of three Trump-appointed judges. The case originated from Nevada, where regulators tried to shut down the Kalshi prediction site.

On prediction sites like Kalshi and Polymarket, users can wager on nearly everything, from sports to culture, award shows, album releases, the weather, the value of gold, and beyond.

With the backing of the Trump administration, prediction markets have been operating as federally regulated financial exchanges. They get licenses from the Commodity Futures Trading Commission to offer “event contracts, which is a type of derivative swap.

But a staggering 44 states have argued that these platforms are, in fact, gambling and should be subjected to state gaming laws and taxes.

“The substance of the sports event contracts offered on Kalshi’s (exchange) is sports gambling, regardless of whether Kalshi calls them swaps,” the appeals panel wrote Friday, adding that “Kalshi’s attempts to distinguish its sports event contracts from sportsbooks betting are unpersuasive.”

Representatives for Kalshi didn’t immediately respond to CNN’s request for comment.

CNN has a partnership with Kalshi and uses its data to cover some major events, but editorial employees aren’t allowed to use prediction sites.

A looming SCOTUS showdown?

The ruling Friday creates a circuit split, with dueling rulings on the same question, teeing up the issue for potential Supreme Court review.

This year, the Third Circuit Court of Appeals sided with prediction sites, halting New Jersey’s attempt to apply its state gaming laws against the companies. Lawyers for New Jersey have said they plans to take that case to the Supreme Court.

“It’s the first ruling against Kalshi at the appellate level, and the opinion seemed to be pretty brutal for the company,” said Dustin Gouker, an independent journalist who covers the prediction industry. “This gets us one step closer to an almost inevitable Supreme Court case on the legality of sports event contracts.”

In the meantime, the Nevada ruling could pave the way for other states to shut down Kalshi. The Ninth Circuit is now binding legal precedent for federal judges in California, Arizona and six other states that have pushed for more regulation.

As the legal cases have played out, prediction sites have exploded in popularity this year. Kalshi now sees billions of dollars in weekly trading volume, mostly from sports markets.

CNN has also reached out to Polymarket for comment. Polymarket was not part of the lawsuit, but it is the second-largest prediction site in the United States.

This is a developing story and will be updated.

The-CNN-Wire
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