Ninth Circuit judges questioned whether prediction markets’ sports event contracts are meaningfully different from sports betting and whether federal law can override state regulation.
The United States Court of Appeals for the Ninth Circuit judges expressed skepticism that sports-based event contracts differ meaningfully from traditional betting during April 16 oral arguments in a consolidated case involving North American Derivatives Exchange Inc. (Crypto.com), Robinhood, and Kalshi against Nevada.
The panel repeatedly questioned whether the contracts qualify as federally regulated “swaps” under the Commodity Exchange Act (CEA), whether that designation preempts state gambling laws, and how the Commodity Futures Trading Commission’s (CFTC) Rule 40.11 applies to such products.
“This is Sophistry”: Judges Challenge Distinction From Sports Betting
From the outset, members of the panel showed clear discomfort with the industry’s attempt to distinguish its products from gambling.
U.S. Circuit Judge Ryan Nelson bluntly rejected Crypto.com attorney Shay Dvoretzky’s argument that exchange-traded contracts differ in substance from sportsbook wagers:
This is sophistry to the nth degree… It’s still the house.”
Nelson further asked Dvoretzky to explain the difference between a sports bet in Caesars and one at a prediction market, adding:
The waters have been muddied, but that happens all the time.”
Kalshi attorney William Havemann argued that a sports-event contract is different from gambling, such as a casino bet. Nelson rebutted again:
You’re basically saying, if it’s not a [designated contracts market], we’re good…But it’s the same action in many instances.”
He added, “This is quintessentially what states have been regulating.”
Also Read: Nevada Court Extends Kalshi Ban, Signals Preliminary Injunction
Industry’s “Market Structure” Defense Meets Resistance
The plaintiffs’ counsel emphasized structural differences between prediction markets and traditional sportsbooks.
When counsel argued that event contracts operate through market mechanisms rather than bookmaker odds, Nelson pushed back:
You’re still setting odds and betting on outcomes… I don’t understand how you can say those are different.”
However, the court focused on whether the differences would hold when applied to specific scenarios, including hypothetical contracts tied to casino-style outcomes.
Nelson compared exchange-based contracts to a roulette bet at a casino. He suggested that the underlying activity remains the same, regardless of transaction structure:
It’s the same ball, it’s the same roulette table, it’s the same guy putting it around.”
Havemann acknowledged the similarity in outcome. Still, he pointed to the difference in execution, arguing that trading on prediction markets involves market participants instead of a house. Trading also serves a price discovery function.
The court remained unconvinced that the structural differences could change the nature of the transaction.
Attorney Nicole Saharsky, representing Nevada, argued that not all gambling requires a house, pushing back on the exchanges’ argument, citing the lottery. She dismissed the argument that the exchanges do not serve as the house, saying that, for some contracts, market makers essentially become the house.
The Definition of a “Swap” Under Scrutiny
Prediction market attorneys relied heavily on the CEA’s definition of swaps, arguing that it clearly covers event-based contracts. Dvoretzky opened the hearing by saying:
The Dodd-Frank Act defines swaps broadly to include contracts where payment turns on the occurrence… of an event associated with a potential financial… consequence.”
However, the court questioned whether that interpretation extends too far into territory historically regulated by the states. Nelson asked:
Is there any suggestion that in Dodd Frank, in 2010… that they intended to transfer jurisdiction over sports gaming… away from the states to the CFTC?”
Dvoretzky acknowledged there was no explicit indication. However, he argued that Congress gave the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over swaps.
CFTC Backs Exchanges, Draws Line on “Gaming”
The CFTC attorney reinforced the prediction markets’ stance that event contracts fall under federal jurisdiction.
Attorney Jordan Minot told the panel that even if a contract raises issues under CFTC rules, it remains a swap. That means it remains under the agency’s authority, not something states can reclassify as gambling.
He also rejected Nevada’s framing that the contracts are gambling. He argued that Rule 40.11 focuses on the nature of the activity, not how the transaction might be characterized as a whole.
Minot drew a distinction between “gaming” and sporting events:
We take gaming to mean casino gambling… it does not… mean an individual sporting event or outcome.”
He reinforced that point under questioning, adding that the agency “doesn’t think that [Rule 40.11] has any application to traditional sports book” activity.
Also Read: CFTC Granted TRO To Halt Arizona’s Criminal Prosecution of Kalshi
Judges Fixate on Rule 40.11
CFTC Rule 40.11 played a central role in the hearing.
Dvoretzky said the CFTC doesn’t think the rule bars sports-event contracts, as he went on to discuss the ruling allowing self-certification with later review.
Nelson stopped him to read Rule 40.11, saying, “That is not… what 40.11 says.” He pointed to the recent Third Circuit ruling in favor of Kalshi, saying the court’s interpretation of the rule was a fundamental problem.
Nelson read the rule out loud:
A registered entity shall not list for trading or except through clearing any of the following… terrorism, assassination, war, gaming.”
He added that the structure of the rule requires prior approval—not post-listing review: “It prohibits it from going on. The only way you get out of that is… a 90-day review and approval first.”
Tensions on the interpretation of the rule surfaced during arguments from Robinhood’s counsel, who argued the rule “shouldn’t be read the way your honor proposes.” Instead, attorney Antony Ryan argued that Rule 40.11 allows for self-certification with later review.
Nelson was unconvinced. Emphasizing the plain language, he responded:
“The language says it can’t go up. I don’t know how you can read it differently.”
He further questioned why the exchanges had not sought advance approval under the rule’s review process: “You had billions of dollars on the line. Why didn’t you go through Subsection C?”
State Warns of “Severe Intrusion” on Sovereignty
Saharsky warned against the dramatic expansion of federal power.
What plaintiffs… are urging is a severe intrusion on state sovereignty… making the CFTC the nation’s gaming regulator.”
The state argued that, taken to its logical conclusion, the approach would sweep in all sports betting:
All sports bets would qualify as swaps.”
Saharsky also said that, as the CEA requires all swaps to be traded on exchanges, that would mean the end of state-regulated sports betting, making the CFTC the nation’s gaming regulator.
But Nelson pushed back on that framing. He questioned whether the outcome must be so dramatic. Nelson suggested that it might be possible to separate traditional sports wagers from novel event-based contracts.
He contrasted a bet on the Super Bowl winner to the color of a postgame Gatorade shower, asking whether the case could be resolved without treating all such activity the same.
What’s at Stake
The Ninth Circuit ruling could be critical for the future of prediction markets in the U.S. If Nevada wins, it would signal that sports-related contracts would fall under state authority.
If prediction markets win, they would be able to continue bypassing state gambling laws, and the exchanges could relaunch in Nevada.
Regardless of the outcome, industry analysts say the fight will likely end up in the U.S. Supreme Court, given the split among courts nationwide.
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