The 9th Circuit Just Tore Down Kalshi's Shield — and Arizona's Case Is Back From the Dead

 

The 9th Circuit Just Tore Down Kalshi's Shield — and Arizona's Case Is Back From the Dead

## How a Unanimous Ruling on Sports Bets Could Revive Criminal Prosecution and Set Up a Supreme Court Showdown

For months, Arizona Attorney General Kris Mayes has been trying to do something no other state had attempted: send a prediction‑market platform to criminal court for taking bets on elections and sporting events. Then, in May, a federal judge slammed the brakes on her prosecution, ruling that federal law likely shielded Kalshi from state gambling laws.

That shield just crumbled.

On August 28, 2026, a unanimous three‑judge panel of the U.S. Court of Appeals for the Ninth Circuit handed down a decision that fundamentally reshapes the legal landscape for prediction markets — and could put Mayes's criminal case back on track. The court ruled that sports‑event contracts offered by Kalshi are **not** “swaps” under the Commodity Exchange Act (CEA), meaning they are **not** shielded from state gambling laws by federal pre‑emption.

“The substance of the sports event contracts offered on Kalshi's DCM is sports gambling, regardless of whether Kalshi calls them swaps,” wrote Judge Ryan Nelson in the panel's unanimous opinion. “Congress did not take a wrecking ball to all sports gambling regulations built up over decades by federal, state, and tribal governments when it amended the CEA”.

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## The Nevada Case That Changed Everything

The Ninth Circuit's ruling came in a case that started in Nevada, not Arizona. Nevada gaming regulators sent Kalshi a cease‑and‑desist letter in 2025, ordering it to stop offering sports and election contracts in the state. Kalshi sued, and a federal judge initially granted an injunction blocking Nevada from acting. But that injunction was later dissolved, and Kalshi appealed.

On Friday, the Ninth Circuit rejected Kalshi's appeal, holding that the company had **not** shown that the CEA likely pre‑empts Nevada's gambling laws. The panel sent the question of election contracts back to a lower court, but on sports contracts, the answer was decisive: states can regulate them.

The ruling directly undercuts the rationale that U.S. District Judge Michael Liburdi used in May when he permanently blocked Mayes from prosecuting Kalshi in Arizona. Liburdi had sided with Kalshi's broad reading of the CEA, concluding that sporting events qualify as “events” and “occurrences” under federal law, meaning they could **only** be regulated by the Commodity Futures Trading Commission (CFTC).

The Ninth Circuit rejected that reading entirely. As Judge Nelson explained, the words “event” and “occurrence” must carry independent meaning: whether the Super Bowl happens is an “occurrence,” but who wins it is **not**.

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## Arizona's Case: From Dead to Alive

Mayes's office had already appealed Liburdi's ruling, but the Ninth Circuit put that appeal on hold while it considered the Nevada case. Now that the appeals court has sided with states, the path forward is clear.

Arizona could use the Nevada decision to argue that Liburdi should lift his injunction and allow the prosecution to proceed. Mayes has charged Kalshi with four counts of illegal wagering on elections — all based on bets placed by an investigator from her office between December 2025 and February 2026. Arizona law also **outright prohibits** betting on elections.

The stakes are high. If Mayes prevails, she would become the first state attorney general to successfully prosecute a prediction‑market platform for criminal gambling violations. That would send shockwaves through an industry that has exploded in popularity, attracting billions of dollars in trades on topics ranging from elections to sports to reality television.

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## The Legal Wrecking Ball

The Ninth Circuit's opinion is notable not just for its outcome, but for its tone. Judge Nelson was blunt in rejecting Kalshi's arguments.

Kalshi had argued that its sports contracts should be treated as swaps because they carry economic consequences for broadcasters, advertisers, sponsors, and franchises. The court was unimpressed, warning that if any downstream economic effect were sufficient, the definition of swap would become “so broad as to be meaningless”.

The court also rejected Kalshi's attempt to frame its contracts as legitimate hedging tools. “Kalshi's contracts do not help institutions or investors hedge against risk; they create risk, largely for ordinary consumers, where none previously existed,” Nelson wrote.

Perhaps most significantly, 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 of the Dodd‑Frank Act.

> “Congress did not take a wrecking ball to all sports gambling regulations built up over decades when it amended the CEA.” — Judge Ryan Nelson

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## A Circuit Split That Screams for Supreme Court Review

The Ninth Circuit's decision creates a direct conflict with the Philadelphia‑based Third Circuit, which ruled earlier this year that New Jersey **could not** regulate Kalshi. The Third Circuit held that Kalshi's sports‑event contracts **are** swaps under the CEA, granting them federal pre‑emption from state laws.

That split is exactly the kind of conflict the U.S. Supreme Court exists to resolve. “The Ninth Circuit has now teed up a circuit split that calls out for resolution by the Supreme Court,” said Zach Fulton, a spokesman for the CFTC. The CFTC, which has argued that it has exclusive jurisdiction over prediction markets, accused the Ninth Circuit of “inventing a new exception to the Commodity Exchange Act”.

Kalshi has already said it will seek further review of the decision. The question of federal versus state control of prediction markets is also pending in the Second, Fourth, Sixth, and Seventh Circuit Courts of Appeals. The issue is not going away anytime soon.

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## The 44‑State Backlash

The Ninth Circuit's ruling aligns with a broader pushback from states. Last month, **44 states** signed a letter arguing that “sports bets are not swaps, futures or other derivatives, so the CFTC lacks statutory authority to regulate them”.

Nevada Attorney General Aaron Ford celebrated the ruling as a “major victory for Nevada and our longstanding authority to regulate gaming in our state”. His office added that the Ninth Circuit “made clear what we have maintained from the beginning: sports betting does not become something else simply because a company calls it an ‘event contract’”.

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## What This Means for the Prediction‑Market Industry

The Ninth Circuit's decision is a serious blow to prediction‑market platforms that have relied on federal pre‑emption to operate in states with strict gambling laws. Kalshi, Polymarket, and others have argued that they are regulated by the CFTC, not by state gaming boards. That argument is now much weaker — at least in the nine states covered by the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington).

For now, trading on sports, entertainment, and election contracts remains blocked in Nevada. The ruling could also embolden other states to follow Arizona's lead and pursue criminal charges against prediction‑market operators.

Kalshi insists that the CFTC's regulations do **not** prohibit sports contracts and that it will seek further review. But for the moment, the legal landscape has shifted decisively in favor of the states.

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## Frequently Asked Questions

### 1. What did the Ninth Circuit actually rule?

The Ninth Circuit ruled that Kalshi's sports‑event contracts are **not** “swaps” under the Commodity Exchange Act, meaning they are **not** shielded from state gambling laws by federal pre‑emption. States can therefore regulate or prosecute prediction‑market platforms for offering sports bets.

### 2. How does this affect Arizona's criminal case against Kalshi?

Arizona Attorney General Kris Mayes had charged Kalshi with illegal election wagering, but a federal judge blocked the prosecution in May, ruling that federal law likely pre‑empted state law. The Ninth Circuit's ruling directly undercuts that rationale, potentially allowing Arizona to revive its prosecution.

### 3. Why is there a conflict between different federal appeals courts?

The Third Circuit ruled earlier this year that Kalshi's sports‑event contracts **are** swaps and are therefore shielded from state regulation. The Ninth Circuit reached the opposite conclusion. This “circuit split” makes it more likely that the U.S. Supreme Court will eventually take up the issue.

### 4. What is the Commodity Exchange Act (CEA)?

The CEA is a federal law that gives the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over swaps and other derivatives traded on designated contract markets. The key legal question in these cases is whether prediction‑market contracts qualify as swaps under the CEA.

### 5. What does Kalshi say about the ruling?

Kalshi has said it will seek further review of the decision. A spokeswoman for the company said Kalshi believes that CFTC regulations do **not** prohibit sports contracts, despite the court's opinion.

### 6. What does the CFTC say?

The CFTC has accused the Ninth Circuit of “inventing a new exception to the Commodity Exchange Act” and says the split between circuits “calls out for resolution by the Supreme Court”.

### 7. How many states are involved in prediction‑market litigation?

Roughly **20 states** are currently locked in litigation over prediction markets. An additional **44 states** signed a letter arguing that sports bets are not swaps and should not be regulated by the CFTC.

### 8. What happens next?

Kalshi is expected to seek further review, potentially from the Supreme Court. In the meantime, the Ninth Circuit's ruling allows states in its jurisdiction to enforce their gambling laws against prediction‑market platforms. Arizona could move to revive its criminal prosecution.

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## The Bottom Line

The Ninth Circuit's unanimous ruling is a seismic shift in the legal battle over prediction markets. By holding that sports‑event contracts are **not** swaps, the court has stripped Kalshi of the federal pre‑emption shield it had used to fend off state regulators.

For Arizona Attorney General Kris Mayes, the decision is a lifeline. Her criminal prosecution of Kalshi, which appeared dead in May, is now very much alive. For the prediction‑market industry, the ruling is a warning: states are not powerless to regulate platforms that look, sound, and act like gambling operations.

And for the U.S. Supreme Court, the Ninth Circuit has just handed it a perfect case to resolve a growing divide among the nation's highest courts.

The wrecking ball that Congress **didn't** take to state gambling regulations has now been swung by the Ninth Circuit — and it's headed straight for the heart of the prediction‑market industry.

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## Disclaimer

*This article is for informational and educational purposes only and does not constitute legal advice. The information provided is based on publicly available court filings, news reports, and legal analysis as of August 29, 2026. Legal proceedings are ongoing and subject to change. For legal advice regarding prediction markets, gambling laws, or specific cases, please consult with a qualified attorney.*