How Kalshi Can Use Ninth Circuit Ruling to Help Its Cause

On Friday, the Ninth Circuit ruled unanimously against Kalshi. The three-judge panel all concluded that Kalshi’s sports markets should not be exempt from state sports betting laws. While this appears to be a major blow to the operator, there is enough in the judgment to give encouragement, according to law professor Melinda Roth.

The ruling, which goes against the Third Circuit, sets up a potential Supreme Court showdown between state gambling regulators and prediction markets. New Jersey officially petitioned for the Supreme Court to take the case on Wednesday.

“I do not think that the Ninth Circuit ruling against Kalshi has any new consequences, as it was predicted,” Roth told CasinoBeats this week. “Everyone knew Nevada was going to rule against Kalshi; the only question was how the court would craft its opinion. To me, this does not change the chances of Kalshi winning at the Supreme Court, despite the losses they have been suffering in courts recently.”

“In fact, the ruling by the Ninth Circuit provides some openings for Kalshi (and other platforms) to use in the legal fight going forward,” she added.

Roth joined the faculty at New England Law in Boston this month. She specializes in sports law and corporate finance and has been closely following the rise of prediction markets.

Her paper analyzing the “new frontier in investing” is soon to be published in the Connecticut Law Review. The publication puts forward the “controversial” view that the Commodity Futures Trading Commission (CFTC) is the appropriate regulator for sports event contracts.

CFTC Continues to Hold Power

In the 50-page ruling released on Friday, the judges cited several previous cases that informed their judgment. One included Loper Bright, a 2024 verdict that ended a 40-year rule requiring judges to defer to federal agency experts, returning the power to interpret vague laws to the courts.

“The judges cite Loper Bright and do not give the CFTC deference, but the difference is that in this case, CFTC (as an amicus) is interpreting its own rules (like the Special Rule), and Loper Bright does not address this, as it was all about not giving deference to ambiguous statutes,” Roth stated.

While all three judges sided against Kalshi, Judge Kenneth Kiyul Lee left some ambiguity over how the Special Rule, which says gaming contracts are contrary to the public interest, may be interpreted.

“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.

Roth believes that Kalshi can use this in future legal battles.

“Judge Lee’s concurrence admits that it seems the CFTC does have discretion not to ban all gaming contracts. Plus, it is clear that the CFTC’s proposed rulemaking might completely change how the court viewed this issue anyway, but they could only rule as to how the rules are now,” she said.

The CFTC has proposed new rules, which could allow sports markets more explicitly. While many have raised objections, introducing these before a Supreme Court case would greatly affect the outcome.

Swaps Definition Remains Vague

In the ruling, the judges said that Kalshi’s sports markets do not fall under the classification of “swaps” in the Commodity Exchange Act (CEA).

The CEA defines “swaps” as “any agreement, contract, or transaction . . . that provides for any purchase, sale, payment, or delivery . . . that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”

Roth says the Ninth Circuit ruling fails to clarify that the markets are not swaps.

“The court says that sports event contracts are not swaps, but never addresses how they have been self-certified, listed, traded, and centrally cleared as swaps,” she says.

Kalshi has long argued in courts that its sports markets fall under the category of swaps as they have real economic consequences. The Ninth Circuit ruling said many of its markets are not swaps as they settle on outcomes rather than events.

“We do not refer to whether the Dodgers win the World Series, or how many touchdowns Fernando Mendoza might throw in a game, or how many points BYU Football will win by as an ‘event,’” the ruling stated.

It went on to add that, “Kalshi’s sports event contracts have the hallmarks of sports betting.”

But what these hallmarks are and how they are defined matters, says Roth. She argues that the ruling does not provide an adequate explanation of which markets should be prohibited, as a host of other markets could also be viewed as settling on outcomes rather than events.

“While the court remanded issues relating to election event contracts, they have also ignored all the other ‘swaps’ that might have an event/outcome difference that they claim is present in sports (the game is the event, but the score is the outcome). It would be the same for many of the other event contracts in different areas (financial, economic, cultural etc.),” said Roth.

The argument that sports markets are swaps may be more difficult to make with parlays, which have become an increasingly large contributor to trading volume at Kalshi. This week, they accounted for 50% of all trades. A judge in Connecticut said parlays “have no independent financial, economic, or commercial consequence at all.”

SCOTUS Shows Willingness to Reverse Ninth Circuit

Lawyer Stephen Piepgrass also told CasinoBeats that the Ninth Circuit ruling does not significantly worsen the position for prediction markets.

Like Roth, Piepgrass said the verdict was expected and sets up a Supreme Court showdown that everyone has been anticipating.

“Of course, you always prefer that an appellate court rule in your favor,” Piepgrass said. “But this is probably the appellate court least likely to harm the prediction market platforms’ chances before the Supreme Court.”

“In recent years, the Supreme Court has shown a willingness to reverse decisions from the Ninth Circuit. If you are a platform operator looking at the odds, you would prefer to be appealing an adverse decision out of the Ninth Circuit to this Supreme Court, more than just about any other.”

Since 2007, the Supreme Court has overturned 79.5% of the cases it agreed to hear from the Ninth Circuit, making it the highest reversal rate of any appellate circuit in that span. The figure has risen recently, with 15 of 16 cases overturned since 2020.

Piepgrass believes the judges were well aware of this fact and wrote the ruling accordingly, including arguments that may stand up in the Supreme Court.

“When reading the decision, it’s apparent that the Ninth Circuit had this dynamic in mind,” he said. “Judge Nelson’s opinion leans heavily on interpretive doctrines likely to appeal to the strict textualists on the Supreme Court who might review it.”

“Ultimately that may be the most interesting observation about this decision: these jurists themselves seem to believe this issue is likely to end up before the Supreme Court, and they wrote the decision with that in mind.”

Major Questions Doctrine Could Limit CFTC Power

Gaming lawyer Daniel Wallach pointed out some arguments that may appeal to the conservative majority on the Supreme Court. SCOTUS currently holds a 6–3 conservative majority that strongly emphasizes textualism, originalism, and limits on federal administrative power.

Wallach and Roth have previously presented together on prediction markets, but admittedly, they do not always see eye to eye. He laid out a series of reasons why the judgment should concern Kalshi and other operators in a post on X.

Over the weekend, I dissected the Ninth Circuit opinion and prepared a synopsis, dividing it into distinct subject matter categories (i.e., swaps, limiting principle, major-questions, Rule 40.11(a), gambling, preemption, etc.). The best way to master and contextualize the ruling. pic.twitter.com/tjs21URGXI

— Daniel Wallach (@WALLACHLEGAL) August 31, 2026

He notes that the ruling says Kalshi’s definition of swaps is overly broad and lacks a limiting principle. Additionally, the major questions doctrine could limit the CFTC’s ability to revise its rules.

The major questions doctrine is a constitutional and administrative law principle holding that if a federal agency wants to issue a rule on an issue of vast “economic and political significance,” it must point to clear and explicit authorization from Congress.

Former Senator Chris Dodd, one of the authors of the Dodd-Frank Act, which amended the CEA in 2010, has explicitly said that Congress did not intend to authorize sports contracts. There also appears to be little appetite for Congress to approve sports event contracts now.

Many questions remain, and the Ninth Circuit ruling has far from settled the debate on whether sports event contracts are fair and legal. States have begun citing the verdict in their legal battles with prediction markets. However, as Roth points out, Kalshi may also identify areas to focus its future arguments.