9th Circuit Rules Sports Betting Not Protected by Federal Commodity Law

The 9th U.S. Circuit Court of Appeals has ruled that gambling on sporting events is not protected by the federal Commodity Exchange Act, delivering a major victory to state regulators. The decision rejects the argument that sports betting can be shielded from state law by being classified as a federal commodity.

In a unanimous decision, a three-judge panel—all appointed by President Donald Trump—held that sports outcomes do not qualify as "swaps" under federal law. Consequently, these activities are not exclusively regulated by the Commodity Futures Trading Commission (CFTC). The court invoked the "major questions doctrine," asserting that the CFTC cannot claim authority over the multibillion-dollar sports betting industry without explicit authorization from Congress. Judge Ryan Nelson noted that Congress did not take a "wrecking ball" to decades of federal, state, and tribal gambling regulations when amending the Commodity Exchange Act.

The Battle Over Prediction Markets

The ruling is a pivotal turn for Kalshi, a prediction market company that has argued its "event contracts" are commodities swaps. Kalshi contended that this classification would grant it federal protection, preempting state-level gambling prohibitions. This legal strategy had previously seen success in Arizona, where Federal Judge Michael Liburdi issued an injunction blocking the state from prosecuting the firm based on a broad interpretation of the Commodity Exchange Act.

However, this new ruling potentially revives a 20-count criminal case brought by Arizona Attorney General Kris Mayes against Kalshi. The charges involve violations of state gambling laws and specific prohibitions against betting on election outcomes. Following the decision, Mayes stated that calling a sports bet a "swap" does not make it one, calling the ruling a significant win for state authority.

Industry Implications

This decision prevents the "federalization" of sports betting regulation, restoring the power of states and tribal governments to enforce gambling laws within their own borders. By limiting the CFTC's reach, the court has ensured that prediction markets cannot simply rebrand gambling activities as financial derivatives to bypass local statutes.

Path to the Supreme Court

The 9th Circuit's decision creates a direct conflict with a previous ruling from the 3rd U.S. Circuit Court of Appeals, which had sided with Kalshi. Because two federal appellate courts now hold opposing views on whether prediction markets can bypass state laws via commodities legislation, the matter is likely headed to the U.S. Supreme Court for a final determination.