U.S. appeals court rules against prediction markets, sets up likely fight at Supreme Court

• The ruling rejected appeals from Kalshi, Crypto.com, and Robinhood to stop Nevada from halting their sports prediction operations, siding with states that classify these offerings as gambling rather than CFTC-regulated swaps
• The contradictory rulings between the Ninth and Third Circuit courts create a 'classic circuit split' over whether the CFTC or state gaming regulators have jurisdiction over sports-related event contracts
• DraftKings stock jumped 7% and Flutter rose over 6% on the news, as both traditional sports betting companies had been negatively impacted by prediction market competition

Summary

The Ninth Circuit Court of Appeals delivered a setback to prediction market platforms on Friday, ruling that sports-related event contracts are not "swaps" and therefore not exclusively regulated by federal authorities. The court rejected injunctive relief requests from platforms Kalshi, Crypto.com, and Robinhood against Nevada's Gaming Control Board, which claims these offerings constitute illegal gambling outside the state's regulatory framework.

Key Legal Issue: Prediction market platforms and the Commodity Futures Trading Commission (CFTC) argue that all event contracts are derivatives falling under federal jurisdiction. States like Nevada contend sports-related contracts are simply gambling subject to state regulation.

Critical Development: The Ninth Circuit's decision directly contradicts an April ruling by the Third Circuit Court of Appeals, which sided with the CFTC's position that all event contracts are federally regulated swaps. This "classic circuit split" virtually guarantees Supreme Court intervention, according to Columbia Law School professor Joshua Mitts.

Market Impact: The ruling benefited traditional sports betting companies. DraftKings shares jumped 7% and Flutter Entertainment (FanDuel's parent) rose over 6%. Both stocks had suffered amid concerns that prediction markets would disrupt their business, prompting both companies to rush their own prediction market platforms to market.

Regulatory Context: The CFTC has actively defended its claimed exclusive jurisdiction, even suing to establish its sole right to regulate prediction markets. Neither Kalshi, Crypto.com, Robinhood, the CFTC, nor Nevada's Attorney General immediately commented on the ruling.

The case represents a fundamental jurisdictional battle between federal and state authorities over emerging financial products at the intersection of derivatives trading and gambling.