- ▸ The panel pressed Kalshi on whether sports contracts are just “gaming” under CFTC rules, while also questioning Nevada’s legal framing and limits.
- ▸ The court focused on whether Congress clearly gave the CFTC authority to override state sports betting laws, or if states still control the space.
- ▸ A ruling for Nevada would deepen the divide with the Third Circuit and likely push the issue toward the Supreme Court.
The US District Court for the Ninth Circuit didn’t let either side off easy in Thursday’s hearing for oral arguments in Nevada’s cases against Kalshi, Robinhood, and Crypto.com. Judges pressed on whether Congress ever clearly authorized federal regulators to displace state sports betting laws, while also probing whether CFTC rules already prohibit the very contracts at issue.
Judge Ryan Nelson led sharp questioning on whether sports event contracts are meaningfully different from gambling at all, but the panel also tested Nevada’s statutory logic and regulatory framing. With a temporary restraining order (TRO) already in place against Kalshi and a preliminary injunction imminent, the unresolved legal questions could soon force an immediate clash between state enforcement and federal market structure.
The main tensions in the ongoing legal conflict remain the same. Nevada says sports event contracts are sports bets subject to state gaming law. Kalshi, Robinhood, Crypto.com and the CFTC itself say they’re swaps under exclusive federal jurisdiction the moment they hit a DCM. The Third Circuit recently affirmed a preliminary injunction for Kalshi over Judge Roth’s dissent while Ohio, Maryland, and Nevada district courts have mostly gone the other way.
Thursday was the Ninth Circuit’s turn, and the circuit split is now very live. Here’s a look at some key highlights from the San Francisco hearing.
Judge Nelson came loaded for Regulation 40.11
A lot of airtime was dedicated to conflicting interpretations of CFTC Regulation 40.11(a)(1), the rule that says a registered entity “shall not list for trading” any agreement that “involves, relates to, or references…gaming.” Judge Nelson read it out loud, slowly, twice, and wasn’t buying interpretations outside of the plain language of the provision. Judge Nelson was emphatic in his interpretation:
“This doesn’t strike me as difficult. 40.11 says, look, terrorism, assassination, war, gaming. We’re not letting those go up. Why? Because this is self-certification. Nobody passes this off to the CFTC. The CFTC isn’t reviewing any of these contracts. So it says we’re not going to allow any of these to go up. If you want them to go up, come to us. We’ll do a 90-day review, and we will either allow it or disallow it.”
When exchange counsel tried to characterize 40.11(a) as merely the front end of a case-by-case review process under 40.11(c), Nelson pushed back harder. He noted that Kalshi had already conceded in its DC Circuit briefing that these are “gaming contracts,” and then asked how Kalshi could square that concession with never having actually sought prior approval under the 90-day subsection. The colloquy ended with Nelson observing that if regulated DCMs really thought the regulation was invalid, it could have filed an APA challenge, which hasn’t happened.
He also wasn’t buy the exchanges’ explanations for how their sports offerings are categorically different from what sportsbooks offer. When Kalshi’s lawyer argued that because the platform has no “house,” its contracts are structurally different from a Caesars sportsbook, Nelson cut in, saying “this is sophistry to the nth degree. I mean, it’s still the house.”
The CFTC’s lawyer: “We don’t regulate gambling”
In a moment that probably wasn’t in the CFTC’s rehearsal notes, Judge Nelson asked counsel for the Commission whether the agency actually has expertise in gaming regulation. The answer: “We don’t regulate gambling, Judge Nelson.”
That admission feeds directly into Nevada’s implied-repeal and major-questions arguments. It’s hard to argue Congress silently transferred a $100 billion-plus state revenue base to a regulator that concedes it doesn’t have the specialty.
The CFTC itself pointed to last month’s Advance Notice of Proposed Rulemaking on event contracts as the forum where clarity will eventually arrive, underscoring the collective understanding that CFTC rules around the offering of contracts related to “gaming” are not entirely clear.
When the CFTC described the ANPRM timeline, Judge Nelson asked whether 40.11 is being directly addressed in the rulemaking. The CFTC counsel noted that it wasn’t specifically named in the notice, but is covered by the questions included.
Nevada leaned hard on “no limiting principle”
Nevada’s counsel, Nicole Saharsky, focused on textual interpretation, arguing that Kalshi’s reading of “swap” has no stopping point. If any event with downstream economic consequences counts as a swap, she argued, then you can list a roulette wheel, a coin flip, the color of the Gatorade dumped on a winning coach: anything, so long as somebody somewhere can claim a financial consequence.
She pressed on Section 2(e) of the CEA, which makes it unlawful for non-eligible-contract-participants to enter into swaps off a DCM. Her point was if Kalshi’s definition of “swap” is correct, then all in-person sportsbook betting at Caesars is already illegal under federal law, because those transactions are happening off-DCM with retail customers. Either the definition is narrower than Kalshi claims, or Nevada’s casinos have been committing federal felonies since 2010. Nelson clearly found that read-through persuasive.
She also invoked the full preemption toolkit the state needs: the presumption against preemption, the presumption against implied repeal (Wire Act, IGRA), and the major-questions doctrine.
As sports betting attorney Daniel Wallach flagged in a pre-hearing analysis, how courts frame the regulatory scope could ultimately dictate the outcome. At a high level, courts evaluating federal preemption often ask what the “relevant field” of regulation actually is before deciding whether federal law displaces state authority. That matters because if the conduct is viewed as sports gambling, state authority is stronger, while framing it as federally regulated swaps strengthens Kalshi’s preemption argument. Ninth Circuit precedent tells courts to define that field first, based on what the state law actually targets, then ask whether federal law occupies it. It’s the opposite sequence from the Third Circuit which just ruled 2-1 in favor of preemption for Kalshi, and closer to how Ohio, Maryland, and Nevada district courts handled the question.
Judge Lee went looking for a middle path
Judge Lee probed whether this has to be an all-or-nothing outcome, or if the court could adopt a narrower reading of preemption, one that limits CFTC exclusive jurisdiction to on-DCM trading without impinging on state-regulated sportsbooks? He even floated the major-questions doctrine as a tool to get there, asking Kalshi whether a “narrow reading of the preemption,” one where the CEA preempts gaming on DCMs but leaves Nevada’s casinos and sports betting intact, would be more faithful to Congress’s design.
Kalshi’s counsel emphasized their position is limited to on-DCM activity. But Nevada’s counsel poked a hole in the hypothetical based on statute. Section 2(e) makes off-DCM swaps unlawful, so if sports bets qualify as swaps under Kalshi’s proposed definition, the brick-and-mortar sportsbooks are in the same bucket, she argued.
Lee also pressed on election contracts (which are at issue for Kalshi specifically, not for Crypto.com/CDNA or Robinhood). Kalshi argued that even if the court doesn’t want to reach elections, the same framework applies as all event contracts on a DCM fall under the CFTC’s exclusive jurisdiction.
Kalshi requests a stay with PI imminent
Running parallel to the merits argument is Kalshi’s bid to stay a Nevada state court preliminary injunction that the state was set to issue tomorrow. Kalshi lawyers made their case that a PI requiring Kalshi to shutter Nevada access to certain contracts would put Kalshi in direct conflict with federal law, which mandates derivatives markets to offer equal access to customers across all US states.
Kalshi’s counsel told the panel that the intolerable risk of inconsistent state and federal rulings is exactly the kind of circumstance that warrants a federal stay pending appeal.
While the panel didn’t rule on the matter, the urgency was clear due the real possibility that Nevada’s state court will issue an injunction before the Ninth Circuit weighs in.
What’s next
The panel told counsel it will “issue an opinion as quickly as we can.” Read the tea leaves how you want, but a few things seem clear:
Nelson’s 40.11 line of questioning, his “sophistry” line, and his pointed reminder that Kalshi told the DC Circuit these were gaming contracts lean toward a vote for Nevada. Judge Lee appears open to a narrower preemption framing, but skeptical that Section 2(e) leaves room for one. Judge Bridget Bade said relatively little but probed Nevada’s limiting-principle on the swap definition, which suggests she’s genuinely wrestling with the textual scope question.
If the Ninth Circuit goes for Nevada, we get a circuit split (Third Circuit for Kalshi, Ninth Circuit for states), which would likely send the case toward the Supreme Court. The CFTC’s forthcoming rulemaking could provide needed clarity, but no one should expect final rulemaking in the next 45 days.
The preemption argument that worked in the Third Circuit is clearly going to face a tougher road in the Ninth. Thursday’s hearing didn’t settle anything, but it did clarify some points of contention around critical issues under the court’s consideration.
