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Federal Appeals Court Rules Against Prediction Markets

Quick Glance at the Facts

• On August 28th, a federal appeals court ruled that states can regulate prediction markets. The ruling stemmed from a case that originated in Nevada.
• Previously, prediction markets such as Kalshi and Polymarket avoided state regulations by relying on their CFTC licenses.
• Many states had already taken steps to regulate prediction markets, so changes to prediction market regulations could come quickly in many parts of the country.

The long battle between states and prediction markets continues, and a federal appeals court has stepped in to rule on the issue of regulation. Prediction markets, which are licensed by the CFTC, have largely avoided state regulators’ jurisdiction. However, on Friday, August 28th, three federal judges ruled that states can regulate prediction markets like they do online sportsbooks.

3 Trump Judges Rule Against Prediction Markets

Over a dozen states have taken steps to regulate prediction markets. However, since these businesses are regulated and licensed by the CFTC, prediction markets have been able to hold state regulators at bay.

That all changed on Friday, when three Trump-appointed judges unanimously ruled in favor of states’ rights to oversee these businesses.

The case stemmed from a lawsuit in Nevada, in which the Silver State was attempting to ban Kalshi. In the ruling, the judges stated that sports prediction markets were sports gambling and said it was “disingenuous” for Kalshi to claim otherwise despite using that phrasing in marketing campaigns.

Will the Supreme Court Rule on Prediction Markets Regulation?

No, the Supreme Court is not going to rule on prediction markets yet.

Friday’s ruling was a major win for state regulators across the US, but the fight between states and prediction markets is far from over. Kalshi can and likely will appeal the recent ruling.

It is not far-fetched to think that the issue will eventually land before SCOTUS. Prediction markets are regulated by the CFTC, a federal agency, raising questions about state vs. federal authority.

The Ninth Circuit Court of Appeals’ ruling also contradicts a previous ruling by the Third Circuit Court earlier this year. In April, the Third Circuit Court ruled that New Jersey could not regulate Kalshi as it is licensed by the CFTC.

First States Likely to Regulate Prediction Markets

Despite their popularity with bettors, the president, and the Trump family, many state regulators oppose prediction markets in their current form. A total of 44 of the 50 states have made efforts to ban or regulate prediction markets.

In addition to Nevada, the states best positioned to regulate or outright ban prediction markets first include:

• Washington
• Kentucky
• Minnesota
• Wisconsin

New Jersey can also make another attempt to ban prediction markets after a federal appeals court struck down the Garden State’s previous attempt in April.

How This Impacts Players

New regulations will shake up prediction markets for users across the country. The extent of changes players can expect varies from one state to another. Also, the potential SCOTUS case in the near future adds to the uncertainty for users.

GamblingNerd Take

Prediction markets were allowed to grow quickly in a largely unregulated space thanks to their CFTC backing. However, their free ride is likely to come to an end. A pro-states’ rights ruling from three Trump-appointed judges could foreshadow a tough battle for prediction markets in SCOTUS if the issue progresses that far.