TheBlock
Prediction market platforms Kalshi and Polymarket lost their bids to block gambling-related cases brought by Nevada and Washington, after a Ninth Circuit panel on Thursday denied their requests to move the disputes into federal court. The judges ruled the companies failed to show the cases belonged under federal jurisdiction, sending both back to state court where they now face unlicensed-gambling claims.
The panel's reasoning cut at the core legal theory both platforms have leaned on: that the Commodity Exchange Act preempts state gambling law because prediction-market event contracts fall under CFTC oversight. The court pushed back, writing that "the CEA preemption defense is an affirmative defense, which cannot by itself give rise to federal question jurisdiction." It also rejected Polymarket's separate argument that CFTC compliance amounted to acting "under a federal officer."
Why it matters
Kalshi and Polymarket have staked their U.S. growth on the position that event contracts are federally regulated derivatives, not state-regulated wagers — and therefore outside the reach of state gaming regulators. Thursday's order weakens that framing in two of the most active enforcement venues. Nevada's cases target the platforms' lack of gaming licenses; Washington's lawsuit focuses on whether Kalshi's products constitute illegal gambling.
The ruling deepens a state-versus-federal split that is now defining the prediction-market sector. Earlier this year, a New Jersey appeals court sided with Kalshi and upheld an injunction blocking that state's effort to stop sports event contracts. But courts in Ohio, Maryland, and Nevada have moved the other way — in April, a Nevada judge extended Kalshi's ban, calling its sports contracts "indistinguishable" from licensed sportsbook bets.
Market impact
The CFTC and DOJ have fired back with their own suits against Minnesota, Illinois, Arizona, and Connecticut, accusing those states of unlawfully interfering with federally regulated derivatives.
Frequently asked questions
-
What did the Ninth Circuit actually decide in the Kalshi and Polymarket cases?
A panel denied the companies' requests to block lower-court rulings and move the disputes into federal court, ruling they failed to show the cases belonged there. The cases were sent back to state court in Nevada and Washington.
-
Why is the federal-jurisdiction argument so important to prediction markets?
Both Kalshi and Polymarket have argued that event outcome contracts are federally regulated derivatives under CFTC oversight, putting them beyond the reach of state gambling law. Losing that argument lets state regulators apply their own gaming rules.
-
What did the court say about the Commodity Exchange Act preemption defense?
The panel wrote that "the CEA preemption defense is an affirmative defense, which cannot by itself give rise to federal question jurisdiction" — meaning raising the federal defense does not automatically move a case out of state court.
-
How have other states ruled on prediction-market contracts?
Courts have split. A New Jersey appeals court sided with Kalshi and upheld an injunction blocking that state's effort to stop sports event contracts, while courts in Ohio, Maryland, and Nevada have sided with state gambling regulators.
-
What is the CFTC doing in response to state actions against prediction markets?
The CFTC and DOJ have sued Minnesota, Illinois, Arizona, and Connecticut, arguing those states are unlawfully interfering with federally regulated derivatives markets. The federal counteroffensive now runs alongside a string of state-court wins against the platforms.
WatcherGuru
CryptoSlate
CoinTelegraph
CoinDesk