Sports Bets or Swaps? Ninth Circuit’s Controversial Kalshi Ruling Deepens the Divide

Does federal derivatives law preempt state gaming regulations when a prediction market lists sports-related contracts as swaps? In KalshiEX, LLC v. Assad, the Ninth Circuit said no, at least for now, ruling that Kalshi had not shown that the Commodity Exchange Act (CEA) likely preempts Nevada’s gaming laws. The court therefore allowed Nevada to resume enforcement of its gaming laws against Kalshi’s sports event contracts.

Are Sports Contracts “Swaps”?

The Ninth Circuit acknowledged that the CEA gives the Commodity Futures Trading Commission (CFTC or the Commission) exclusive authority over “swaps” traded on a designated contract market. However, the threshold question in this case was whether Kalshi’s sports contracts are swaps.

The court concluded that these sports contracts are likely not swaps.[1] First, turning to the definition of “event” in “event contract,” although “event” could be read broadly enough to include a game’s outcome, the court stressed that the statutory meaning “does not always turn solely on the broadest imaginable definitions” of individual words.[2] In ordinary usage, the court reasoned, the Super Bowl is an event, while the winner, point spread, or number of touchdowns is the event’s outcome. Echoing Shakespeare’s observation that “a rose by any other name would smell as sweet,”[3] the court was equally direct that “[t]he substance of the sports event contracts offered on Kalshi’s DCM is sports gambling, regardless of whether Kalshi calls them swaps.”[4] 

However, Kalshi’s event contracts were self-certified as swaps, are listed as swaps, and currently trade as swaps on a CFTC-registered designated contract market. If these contracts are not swaps, it is unclear how they could lawfully trade on a DCM at all. The court does not fully address this tension.

Kalshi argued that sports outcomes carry economic consequences for broadcasters, advertisers, sponsors, franchises, and local communities. However, the court found that this theory was too broad. If any downstream economic effect were sufficient, the definition of swap would become “so broad as to be meaningless.”[5] The court noted that if sports contracts are swaps simply because payment depends on a game outcome, then ordinary off-exchange sports bets could also fall within the statutory definition of a swap. Extending this logic further, the court reasoned that bets on “bingo games” and “ping pong matches” could potentially fall under the CFTC’s jurisdiction.[6]

The court further examined statutory context, noting that swaps ordinarily transfer financial risk associated with rates, currencies, commodities, securities, or similar interests. Kalshi’s contracts, by contrast, “do not help institutions or investors hedge against risk; they create risk, largely for ordinary consumers, where none previously existed.”[7]

Finally, the court emphasized that gambling has historically been regulated by states and tribes. It found it implausible that Congress quietly transferred nationwide authority over sports gambling to the CFTC through the broad language contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. As the court put it, Congress did not “take a wrecking ball to all sports gambling regulations built up over decades” when it expanded the CEA’s definition of swap.[8]

The Ninth Circuit’s statement regarding gambling regulations being “built-up over decades” belies the fact that states only received authority to regulate gambling after the 2018 US Supreme Court case Murphy v. National Collegiate Athletic Association, which struck down the Professional and Amateur Sports Protection Act of 1992 (PASPA).[9] In that 6-3 decision, the court ruled that PASPA unconstitutionally commandeered state legislative power by forcing states to keep sports betting bans in place. 

In addition, the Ninth Circuit’s decision did not specifically address whether Kalshi’s event contracts meet the definition of a swap under prong (iv) of the swap definition under the CEA, which includes “an agreement, contract, or transaction that is, or in the future becomes, commonly known to the trade as a swap[.]”[10]

Reliance on CFTC Rule 40.11

The court also relied on CFTC Rule 40.11, which states that a registered entity shall not list contracts involving, relating to, or referencing gaming. Because Kalshi offers contracts on game outcomes, point spreads, player performance, and parlays, the court concluded that the products relate to gaming “under any reasonable interpretation.”[11]

Judge Kenneth Kiyul Lee noted in his concurring opinion that the CEA provides that the CFTC may determine that gaming contracts are contrary to the public interest, potentially suggesting that Congress did not categorically exclude every gaming-related contract. That provision, he wrote, “gives me pause” and could mean that “some unique sports events can be part of a swap trade.”[12] But Judge Lee noted the court did not need to resolve the issue because Rule 40.11 currently remains in effect and “bars gaming contracts,” irrespective of whether the CEA itself categorically prohibits them.[13]

A Supreme Court Fight Is Now a Real Possibility

Following the Third Circuit’s ruling, the Ninth Circuit’s ruling creates a direct circuit split over whether sports event contracts are swaps and whether state gaming laws are preempted. Given the conflict and broader implications for prediction-market regulation, Supreme Court review is now substantially more plausible. New Jersey has until September 3, 2026, to petition the Supreme Court for review of the Third Circuit’s ruling, now with a newly minted circuit split to feature in its petition.

It is important to note that both decisions arise from preliminary-injunction proceedings, not final merits judgments. Thus, the Supreme Court may resolve the split now or wait for a more procedurally developed case.