Prediction Markets Face SCOTUS Showdown After Ninth Circuit Gambling Ruling

⏰ 3 min read

The US prediction markets industry faces its most consequential legal reckoning to date after the Ninth Circuit Court of Appeals ruled 3‑0 on August 28, 2026 that states have the authority to regulate sports event contracts as gambling — directly contradicting a prior Third Circuit decision and creating the clearest circuit split the sector has yet produced. Within days, New Jersey, Robinhood, Crypto.com, and North American Derivatives Exchange each filed or signalled petitions asking the US Supreme Court to resolve the standoff.

The stakes are enormous. Combined global prediction market trading volume reached roughly $50.6 billion per month in July 2026 — more than three times the approximately $14 billion wagered monthly at licensed US sportsbooks in 2025. Sports contracts account for the bulk of volume on platforms like Kalshi and Robinhood, and a Supreme Court ruling against federal preemption could force those platforms to either obtain state gaming licences or exit sports markets entirely.

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The Ninth Circuit Ruling

In KalshiEX, LLC v. Assad, a three-judge Ninth Circuit panel dissolved a preliminary injunction that had briefly shielded Kalshi from Nevada gaming enforcement. The court held that sports event contracts are not "swaps" within the meaning of the Commodity Exchange Act (CEA) and that the CEA therefore does not preempt state gambling laws. Circuit Judge Ryan Nelson wrote that the sports event contracts were not swaps "because they were sports bets." The court found that Kalshi markets its products as legal sports betting, and because sports betting is a "quintessential form of gambling," accepting a broad federal-preemption argument would leave no principled distinction between prediction market contracts and the offerings of licensed sportsbooks like Caesars or FanDuel.

The panel also remanded questions concerning election contracts to the district court, narrowing the immediate ruling to sports markets only — the segment with the most commercial weight.

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The Circuit Split Explained

The Ninth Circuit's decision lands squarely at odds with a Third Circuit ruling from April 2026, in which that court found that all event contracts are swaps regulated exclusively by the Commodity Futures Trading Commission (CFTC) — granting Kalshi an injunction against New Jersey regulators. The two circuits now hold irreconcilable positions on the same statutory question, making the case a near-certain candidate for Supreme Court review.

Circuit	Ruling	Effect on Kalshi	Governing States
Third Circuit (April 2026)	Event contracts are swaps; CFTC has exclusive authority	Wins injunction vs. New Jersey	DE, NJ, PA, VI
Ninth Circuit (August 28, 2026)	Sports event contracts are not swaps; states may regulate	Loses injunction; Nevada can enforce	AK, AZ, CA, HI, ID, MT, NV, OR, WA, GU

44 states have jointly disputed CFTC authority over sports event contracts, and eight states had already sent cease-and-desist letters to Kalshi and other platforms before the August ruling.

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The Race to SCOTUS

Four separate parties moved quickly to force a Supreme Court decision. New Jersey Attorney General Jennifer Davenport filed a certiorari petition on September 2, 2026 — the first state to bring the prediction-markets dispute to the Court — asking whether the Dodd-Frank Wall Street Reform and Consumer Protection Act preempts state regulation of sports bets offered on CFTC-registered exchanges. Robinhood filed a separate petition on September 9, and North American Derivatives Exchange filed on September 11.

Crypto.com and Robinhood are asking the Court to rule that the CEA prohibits states from regulating sports event contracts traded on a designated contract market — the opposite of the position taken by New Jersey and the Ninth Circuit. Kalshi itself did not petition SCOTUS, instead filing for en banc rehearing at the Ninth Circuit on the same date. None of the petitions has been granted as of publication.

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Impact on Operators and Bettors

The legal bifurcation creates immediate practical consequences across the regulated gambling market:

• Licensed sportsbooks — DraftKings, FanDuel, BetMGM, Caesars, ESPN Bet — pay state licensing fees, taxes, and comply with responsible gambling mandates. Prediction platforms operating under federal preemption arguments do not. A pro-state ruling at SCOTUS would level that playing field.
• Bettors in Ninth Circuit states (including California, Nevada, and Washington) currently face potential platform restrictions or withdrawal of sports markets while litigation continues.
• The CFTC published a Notice of Proposed Rulemaking on June 10, 2026 defining "gaming" and setting an evaluation framework for sports event contracts; the comment period closed July 27. A finalized rule could preempt state law — but the Supreme Court could rule first.
• Prediction market sports volume is projected to reach $240 billion in 2026, up from roughly $51 billion in 2025, with sports contracts comprising approximately 80% of Kalshi's book.

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What Comes Next

The Supreme Court will likely decide whether to grant certiorari in the autumn term. Legal observers quoted by The Hill expect that if the Court accepts the case, a decision would land by early summer 2027 — the same timeframe as the next NFL season begins ramping up. DLA Piper's gaming law team notes that three outcomes remain live simultaneously: platforms could be required to obtain state licences, forced to withdraw sports contracts from specific jurisdictions, or allowed to continue operating under a federal framework if the CFTC finalises its rule before the Court rules. For now, the US prediction market industry is operating in two legal realities at once — permitted by federal law in some circuits, regulated as gambling in others.

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Sources

Reporting draws on primary regulatory filings, court documents, and analysis from legal and industry specialists.

The sports event contracts were not swaps — because they were sports bets.

— Circuit Judge Ryan Nelson, US Court of Appeals for the Ninth Circuit · KalshiEX, LLC v. Assad, August 28, 2026