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Nevada challenges Kalshi‘s move to wait for new federal regulations before the Ninth Circuit reviews its rehearing petition. The state argues that upcoming changes by the Commodity Futures Trading Commission (CFTC) may not address the legal basis of the court’s decision, leaving prediction-market operators facing the same state-regulation issue even after rule revisions.
This distinction is crucial for those monitoring esports event markets. A shift in how contracts are categorized by a federal regulator does not automatically mean that a court will change its legal interpretation. Nevada contends, as reported by CasinoBeats, that the Ninth Circuit’s analysis hinges on the Commodity Exchange Act itself, not solely on the wording of a single CFTC regulation. The disagreement is part of the broader debate over CFTC rulemaking concerning prediction markets.
A new rule is not equivalent to a new statute
In a letter dated September 25, Kalshi requested the court to consider its case en banc or to postpone the petition until the CFTC updates Section 40.11. The company referenced the agency’s plan to amend the regulation within the next two months. Nevada argues that this timeline is not a valid reason to halt the legal proceedings.
Nicole Saharsky of Mayer Brown, representing Nevada, contends in the filing that the court was aware of the CFTC’s intent to revise the provision when it made its initial ruling. The state’s argument goes beyond dismissing the agency’s work as irrelevant; it emphasizes that a planned revision indicates a potential timing of change but does not guarantee a shift in the court’s rationale.
According to Nevada, the Ninth Circuit determined that Kalshi’s contracts related to sports events did not qualify as swaps under the Commodity Exchange Act based on the statute’s language, context, and objectives, rather than just the current wording of Section 40.11. The classification of event contracts as swaps and the question of federal jurisdiction overriding state gambling regulation are at the core of the legal dispute.
The CFTC has submitted two proposed rules for review by the White House Office of Information and Regulatory Affairs. One proposal aims to redefine swaps to include event contracts, while the other seeks to exclude casino-style gambling products. While these proposals could reshape federal regulations, their existence does not automatically imply a reconsideration of the Ninth Circuit’s statutory analysis.
Kalshi’s request remains pending
Kalshi’s procedural argument highlights that the anticipated CFTC modification could impact the court’s decision on rehearing. As the Ninth Circuit has not yet decided on granting the petition or pausing its review, Nevada’s stance serves as an argument in the ongoing legal proceedings, rather than a definitive ruling.
Nevada also portrays the delay request as an attempt to prolong Kalshi’s operations during the unresolved dispute. This allegation stems from the state’s perspective and does not signify a conclusive judgment by the court. It underscores that the legal battle is active, and a forceful filing does not translate into a judicial resolution merely for the sake of a catchy headline.
The broader conflict at the state level regarding Kalshi’s event contracts underscores the significance of the rehearing beyond Nevada. Operators offering esports markets encounter similar uncertainties, where a product may be viewed as a federally regulated contract while state authorities interpret it as falling under gambling laws.
Courts continue to define boundaries
In August, a three-judge panel of the Ninth Circuit ruled that Nevada gaming regulators could oversee Kalshi’s platform, indicating that the Commodity Exchange Act likely does not preempt state gaming regulations. The reference also points to another Ninth Circuit ruling in Blue Lake Rancheria v. Kalshi, which concluded that the act does not permit sports betting on tribal lands. Additionally, Sixth Circuit decisions have allowed Ohio and Tennessee to enforce their sports-gambling laws against Kalshi.
These cases form a broader appellate context, indicating that not every court will reach the same conclusions. Another Kalshi ruling related to esports wagering serves as a reminder that the regulatory landscape is evolving through various legal disputes rather than a singular federal rule alteration.
Illinois introduces another unresolved aspect
Illinois presents a contrasting aspect of the situation. A federal judge partially granted preliminary injunction requests involving Kalshi, Coinbase, and the CFTC, noting that state gaming licensing regulations conflict with federal laws governing sports-event contracts. The specifics of the injunction need further refinement, with parties instructed to propose terms by October 29.
The Illinois Gaming Board deems sports-event contracts as illicit, untaxed gambling activities. The state has imposed transaction taxes on sports-event contracts offered by prediction markets, while challenges to its wagering fees remain unresolved within the legal proceedings. This separate case does not conclude Nevada’s appeal but emphasizes the clash between federal and state regulations within the same product category.
For operators, the practical question revolves around whether federal classification of a contract can shield it from state gaming requirements when courts view sports-event markets as forms of gambling. While the CFTC may revise its rules eventually, Nevada’s submission underscores a crucial point: altering an agency regulation does not automatically alter a court’s interpretation of the underlying statute. The rehearing petition, federal rulemaking, and Illinois injunction terms are all pending resolutions.