Ninth Circuit Rules Kalshi Sports Contracts Likely Aren't Swaps, Splits With Third
The U.S. Court of Appeals for the Ninth Circuit unanimously affirmed in part the dissolution of KalshiEX's preliminary injunction against Nevada gaming regulators, holding that the prediction market operator's sports event contracts are likely not "swaps" under the CEA, a holding that splits with the Third Circuit.
The panel held that Kalshi failed to show the CEA likely preempts state gaming rules for its sports contracts, departing from the Third Circuit's contrary ruling in KalshiEX, LLC v. Flaherty. The Fourth Circuit is weighing the same question in an appeal from a Maryland ruling against Kalshi. Because the district court never analyzed whether Kalshi's election contracts are swaps, the Ninth Circuit remanded that question for consideration in the first instance.
On the merits, the Ninth Circuit found: (i) an "event" (like the Super Bowl) is distinct from its "outcome," so the broadest reading of "swap" was wrong; (ii) Kalshi's theory that sports outcomes create downstream economic effects on broadcasters, advertisers, and communities would make the swap definition "so broad as to be meaningless," sweeping in ordinary bets, bingo, or ping-pong; and (iii) swaps typically transfer existing financial risk, whereas Kalshi's contracts create new risk for consumers. The court also stressed that gambling has traditionally been state and tribal territory, a tradition Congress did not silently override in Dodd-Frank.
Separately, the court relied on CFTC Rule 40.11 ("Review of event contracts based upon certain excluded commodities"), which bars registered entities from listing contracts involving or relating to gaming. Because Kalshi's contracts cover game outcomes, point spreads, player performance, and parlays, they relate to gaming "under any reasonable interpretation" and are barred regardless of whether the CEA categorically excludes such contracts from its coverage, according to the court. The CFTC has proposed amending Rule 40.11, but the court said that until the amendment is adopted, the existing rule bars Kalshi's gaming-related contracts.
Ninth Circuit Judge Kenneth K. Lee concurred, flagging that the CEA lets the CFTC deem gaming contracts contrary to the public interest - a provision that "gives me pause" and might let some unique sports events qualify as swaps - though he agreed Rule 40.11 independently bars the contracts.