Prediction Markets, Nevada Take Preemption Odds to Appeals Court

Lawyers for Kalshi Inc., Crypto.com, and Robinhood Markets Inc. will duel with their Nevada counterparts Thursday in an appellate battle over who has regulatory control of the growing sports prediction markets: a federal agency or the states.

The companies will implore the US Court of Appeals for the Ninth Circuit to reverse trial court decisions siding with Nevada gaming officials, arguing the federal Commodity Futures Trading Commission is the sole overseer of federally-licensed markets. The agency, which stands in charge of US derivatives trading, is in the companies’ corner, maintaining the home of America’s gambling capital and other states are encroaching on its turf.

“The appeal places a number of different arguments on the table,” said Barnes & Thornburg LLP’s Paige Lohse. Its ruling “will affect regulation in an important circuit going forward until this gets to the Supreme Court.”

Event contracts are hedging tools called “swaps” traded on designated contract markets under the federal Commodity Exchange Act, according to the companies and US government lawyers, granting the CFTC exclusive jurisdiction and preempting state regulations.

Nevada counters that sports prediction markets are unlicensed wagering in violation of its laws. Otherwise, all sports betting would be swept under the CFTC’s purview, and Congress didn’t mean to secretly preempt state gaming regulation in its post-2008 financial crisis update to the CEA.

The burgeoning billion-dollar industry has attracted entrants including Donald Trump‘s son and the president’s social media company. The accompanying legal battle among states, prediction market companies, and the CFTC stretches coast to coast and includes commission-filed suits against Connecticut, Illinois, and Arizona.

Read More: Prediction Markets Test Limits of State-Level Sports Bets Bans

The discussion on preemption and particularly the judges’ questions lobbed at the federal government arguing as amici may provide clues on how the Ninth Circuit might lean, attorneys say. Judges Ryan D. Nelson, Bridget S. Bade, and Kenneth K. Lee—all Trump appointees—are scheduled to hear the arguments in San Francisco.

It’ll be helpful to see how the CFTC “stakes out the full theory of their ability to engage in field preemption,” said Boies Schiller Flexner LLP’s Dan Boyle.

Boyle said he wouldn’t be surprised to see some “fairly harsh questions” on separating prediction markets from gambling. “And perhaps we’ll start to see how the CFTC is going to distinguish between sports predictions as opposed to lawful state gambling, because that is obviously the core of the dispute a lot of the states are bringing.”

High Stakes

Prediction markets let people put money on an array of binary outcomes, from whether Indiana Hoosiers quarterback Fernando Mendoza will be the No. 1 pick in the 2026 NFL Draft to whether traffic at the Strait of Hormuz will normalize by June 1.

The stakes are high in terms of dollar value and regulatory power. Gambling has historically been a state regulatory matter, be it in Las Vegas, Atlantic City, or elsewhere. The fight between Nevada and predictions markets has raged across state and federal courts, with Kalshi temporarily barred from offering sports and other event contracts there by a Nevada judge’s order.

Binary trading isn’t new. Hedging can be helpful, said Morrison Cohen LLP’s Jason Gottlieb, particularly in the commodities industry where a farmer may bet on weather that may impact cotton or corn yields. “Because if there is, then your crops may not grow properly, and you want to be able to hedge that bet on the weather.”

“I think for the states, it’s probably a more significant financial impact than it is for the federal government because the states have dedicated gaming regulatory entities that focus on that market and significant gaming tax and license fees,” said Haynes Boone’s Brian Sung. “On the federal side, the CFTC is focused on all derivatives markets, and this is one of many, and it’s also a new market without a separate federal tax, so it’s not a case where they have had as an existing revenue source.”

Third Circuit Impact

The arguments come shortly after the Third Circuit became the first federal appeals court to weigh in on the debate that’s roiling district courts, upholding a preliminary injunction barring New Jersey’s regulation in a 2-1 decision that attorneys say may be instructive or tee up a circuit split. The majority found Kalshi would likely succeed in arguing sports event contracts are CFTC-regulated swaps.

“The New Jersey Division of Gaming Enforcement, and other states, will likely proceed by focusing on building a factual record to show that sports-events contracts are either not swaps or why they fit within the CEA’s savings clauses” or the CFTC’s own rule that prohibits gaming contracts, said Barnes & Thornburg’s Paul Kisslinger. “If Kalshi’s contracts violate the CFTC’s own rules, the preemption argument potentially collapses entirely; preemption can’t shield conduct that federal law itself prohibits.”

“While this is a win for Kalshi, it leaves many critical questions unanswered, and therefore leaves the door open for further splits across the circuits to develop until the Supreme Court takes on the issue,” Lohse said. “Perhaps the Ninth Circuit will provide more detail in ruling on the appeal.”

A material disagreement among the circuits would be “catnip for the Supreme Court,” said Gottlieb. “Where you’ve got a matter of federal importance, and a large economically important issue for the country, where different circuits have taken different positions, that’s exactly the kind of case that they would be more likely to take than just about any other.”

Kalshi, Nevada’s gaming control board, and Attorney General Aaron Ford‘s office declined to comment. Crypto.com, Robinhood, and the CFTC didn’t respond to emails seeking comment.

Milbank LLP and Bailey Kennedy LLP represent KalshiEX LLC. Skadden, Arps, Slate, Meagher & Flom LLP, Cleary Gottlieb Steen & Hamilton LLP, and Snell & Wilmer LLP represent Crypto.com’s North American Derivatives Exchange Inc. Cravath, Swaine & Moore LLP and Pisanelli Bice PLLC represent Robinhood Derivatives LLC. Ford’s office and Mayer Brown LLP represent Nevada officials.

The cases are N. Am. Derivatives Exch., Inc. v. Nev., 9th Cir., No. 25-7187, 4/16/26, KalshiEX, LLC v. Assad, 9th Cir., No. 25-7516, 4/16/26, Robinhood Derivatives, LLC v. Dreitzer, 9th Cir., No. 25-7831, 4/16/26, and Nev. v. KalshiEX, LLC, 9th Cir., No. 26-1304, 4/16/26.