In late August, the Ninth Circuit issued what should be an obvious ruling: A sports bet remains a sports bet, regardless of what the platform calls it.
The fact that this proposition required resolution by a federal appellate court says a great deal about how far prediction markets have outrun the legal architecture meant to govern them. Platforms like Kalshi have rebranded wagering as “event contracts,” building a lucrative consumer product around this loophole. Users can put money on sports, elections, entertainment, and other real-world outcomes. The industry describes these transactions as financial contracts regulated at the federal level by the Commodity Futures Trading Commission (“CFTC”).
Nevada, along with a considerable number of other states, sees the matter differently, and their reasoning requires little elaboration: when a person risks money on an uncertain outcome, especially on the outcome of a game, rebranding the transaction up as a “contract” does not alter its essential character.
The U.S. Court of Appeals for the Ninth Circuit has now agreed. However, this decision directly conflicts with an April ruling from the Third Circuit, which concluded that Kalshi’s sports event contracts qualify as “swaps” under the Commodity Exchange Act and therefore receive federal pre-emption from state gambling regulation and oversight.
Two federal circuits, examining substantially the same phenomenon, have now arrived at opposite conclusions. Similar litigation continues to work its way through additional circuits, and the CFTC itself has acknowledged that the resulting split may ultimately demand Supreme Court intervention. It probably will. But while courts sort out the jurisdictional question, we should not lose sight of the people actually using these products.
States did not develop gambling regulation as an exercise in semantics. It emerged from practical concerns: age verification, licensing, responsible-gaming safeguards, consumer protection, game integrity, and the capacity of regulators to intervene when something goes wrong. None of those concerns are alleviated simply because a wager migrated from a sportsbook’s platform to a prediction market.
If anything, this shift may make the underlying risk harder for consumers to recognize. Traditional sports betting is branded as just that, betting. Prediction markets are much less clear and operate in a gray area. The terminology associated with prediction markets may change the perception of gambling, but it does not change the risk associated with it.
If someone puts money on a football team to win on a given Sunday, have they made a fundamentally different decision because one platform may call it a bet and another calls it a futures contract? In reality, of course not, but this is the question underneath this legal complexity and the answer matters beyond sports.
Prediction markets have expanded into elections, economic events, and entertainment. As their popularity increases, so does the possibility that people who would never think of themselves as gamblers begin repeatedly putting money at risk on uncertain outcomes precisely because the experience is engineered to feel like investing rather than betting.
None of this argues for prohibiting prediction markets outright. It argues that regulation should track what a product actually does, and not the vocabulary its marketers have chosen for it.
There is also a federalism concern that should be seriously considered. For decades, states have exercised independent judgment over gambling within their borders, determining who may operate, which products are permitted, what age restrictions apply, and what protections companies must provide their customers. While Congress certainly retains the authority to pre-empt state law when it chooses to do so, courts should require a clear statutory basis before concluding Congress intended to displace an entire body of gambling law merely because a company structured a wager as a financial instrument. Forty-four states recently advanced this precise argument, and contended that sports wagers are neither swaps, futures, nor derivatives, and cannot be swept into CFTC jurisdiction.
The Ninth Circuit’s ruling does not resolve this dispute, but rather indicates this dispute will continue to grow. The Supreme Court will likely have to determine where the Commodity Exchange Act ends and traditional state gambling authority begins. Congress may need to enact precise legislature for a category of product that has evolved considerably faster than the statutes meant to govern it.
Regardless of what comes next, regulators and courts alike should begin their analysis with protecting the consumer, regardless of how these products are labeled. If Americans are wagering money on uncertain outcomes, particularly the outcome of sporting events, they are entitled to the protections this country has spent decades building for people who gamble. Calling the wager a “contract” should not make those protections disappear.
Madeline Pendley is a national mass torts attorney with Rafferty Domnick Cunningham & Yaffa, representing individuals harmed by dangerous drugs, toxic exposures, and defective products. Madeline was recently appointed to serve on the Plaintiffs’ Executive Development Committee in the Roblox multidistrict litigation, reflecting national recognition of her leadership in high-stakes mass tort proceedings.
