A federal appeals court found that sports event contracts are likely not "swaps" under commodities law, a decision that strengthens the hand of state regulators and sets up a probable fight at the Supreme Court.
A ruling from the U.S. Court of Appeals for the Ninth Circuit, issued August 28, has emerged as one of the more consequential recent developments for the fast-growing prediction markets industry. The court found that sports event contracts, the kind of instruments offered by platforms such as Kalshi and Polymarket that let users take positions on the outcome of sporting events, are likely not "swaps" under the Commodity Exchange Act, a classification that has been central to arguments that federal regulation should preempt state-level oversight of these products.
The distinction matters because prediction market platforms have argued that their products, regulated at the federal level by the Commodity Futures Trading Commission, should not also be subject to a patchwork of state gambling and gaming laws. A finding that these contracts fall outside the federal "swap" definition weakens that argument and strengthens the position of states seeking to regulate or restrict the products directly.
State regulators have moved quickly on that front. Michigan issued a preliminary injunction imposing geolocation compliance requirements, with penalties of up to $500,000 per day for violations. Connecticut issued cease-and-desist orders against both Kalshi and Polymarket. Additional preliminary injunctions have been reported in Minnesota, Tennessee, and Massachusetts.
Kalshi has sought an en banc rehearing of the Ninth Circuit's decision, a request for the full appeals court to reconsider a ruling issued by a smaller panel of its judges, and that request remains pending. Separately, at least three petitions seeking Supreme Court review of the underlying legal question were filed by different parties in early September, though none has yet been granted.
For investors and operators in the prediction markets space, the ruling raises the stakes considerably on the industry's ability to operate under a single federal regulatory framework. A prolonged legal fight, potentially reaching the Supreme Court, would extend the period of regulatory uncertainty for platforms that have built rapidly growing businesses around sports and event contracts, at exactly the moment state-level enforcement actions are becoming more aggressive rather than less.