Kalshi Loses Ninth Circuit Ruling as CFTC Tightens Event Rules

The legal ground under sports prediction markets shifted decisively in 2026. On August 28, the US Court of Appeals for the Ninth Circuit ruled 3-0 against Kalshi in KalshiEX, LLC v. Assad, affirming a district court order that dissolved a preliminary injunction the platform had won. Combined with a CFTC proposed rule issued in June, the regulatory picture for sports event contracts is more constrained than at any point in the sector's explosive rise.

The short version: prediction markets grew from under $5 billion in monthly volume in September 2025 to roughly $24 billion by April 2026, with sports contracts driving the majority of that. Regulators and courts are now catching up, and the questions of whether these contracts are gambling and who gets to regulate them are being answered in real time.

What the Ninth Circuit Decided

The core dispute is jurisdictional. Kalshi's position has been that as a CFTC-designated contract market, its event contracts are federally regulated commodities products, and state gambling regulators are preempted by the Commodity Exchange Act from taking enforcement action against them.

The Ninth Circuit's unanimous ruling affirmed the dissolution of the injunction Kalshi had obtained, meaning the state enforcement action can proceed. It is a procedural posture rather than a final merits determination on preemption, but the direction is unmistakable, and it creates a circuit-level precedent that other states will cite.

The ruling is particularly significant because the preemption theory was the foundation of the entire sports event contract business model. If states can enforce their gambling laws against prediction market platforms, the platforms face the same 50-state licensing patchwork that sportsbooks navigate — without the licenses.

The CFTC's June Proposed Rule

Running in parallel, the CFTC issued a proposed rule on June 10, 2026, containing substantive changes to Rule 40.11 and a new procedural framework for event contracts.

The most consequential elements would bar certain categories of sports-related contracts outright, including those tied to officiating outcomes and player injuries. The rationale is straightforward integrity policy: contracts on whether a specific player gets injured, or on how officials rule, create incentives that no regulator wants to sanction.

The proposal represents a notable shift for an agency that had spent the preceding period expanding accommodation of event contracts. It also raises an uncomfortable question the industry has largely avoided: if certain sports contracts require prohibition on integrity grounds, that is an implicit acknowledgment that these instruments function as sports wagering.

The Preemption Litigation Map

The jurisdictional fight is being waged on multiple fronts simultaneously. The CFTC has taken the position that state enforcement actions against prediction market platforms are preempted by the Commodity Exchange Act, and litigation involving Arizona, Minnesota, Wisconsin, Illinois, New York and Connecticut is active.

That produces the unusual situation of a federal agency litigating against multiple state regulators over who controls a market that state regulators believe is gambling and the federal agency treats as derivatives trading. A split among circuits on the preemption question would make Supreme Court review considerably more likely.

Why the Numbers Made This Inevitable

Regulatory attention followed the money. The scale of growth is difficult to overstate:

• Prediction markets generated $51 billion in trading volume across 2025
• Combined monthly volume for Kalshi and Polymarket quadrupled from under $5 billion in September 2025 to roughly $24 billion by April 2026
• Bernstein Research has estimated volume could reach $240 billion by the end of 2026 and $1 trillion by 2030
• Sports-related trades have accounted for approximately 80% of Kalshi's total volume since July 2024

That final figure is the one regulators keep returning to. A platform founded to let people trade on economic indicators, elections and weather now derives four-fifths of its activity from sports. Whatever the legal characterization, the practical use case is clear.

Political and Banking Pressure

Legislators have taken notice. In April 2026, congressional Democrats urged the CFTC to rein in prediction market sports betting and address insider trading concerns — the risk that people with non-public information about a team, a player's health, or an official's assignment can trade on it in a market with far less surveillance infrastructure than licensed sportsbooks maintain.

By August, scrutiny had extended to banking relationships, with financial institutions reassessing their exposure to platforms whose legal status is contested across multiple states. Payment processing risk has historically been an effective constraint on gambling-adjacent businesses, and it operates faster than litigation.

What It Means for the Regulated Industry

Licensed sportsbooks have watched the prediction market boom with obvious frustration. They pay state licensing fees, tax rates that can exceed 50% in some jurisdictions, and comply with extensive responsible gambling and age verification requirements. Prediction markets offering functionally similar products under federal commodities registration face none of that.

The 2026 rulings begin to close that gap, but slowly and unevenly. For now the competitive asymmetry persists in most of the country, and it has become a central argument in state legislative debates about tax rates — operators pointing to an untaxed competitor as a reason not to raise their own burden.

For consumers, the practical distinction matters more than the legal one. Licensed sportsbooks operate under state consumer protection frameworks covering dispute resolution, segregated player funds, self-exclusion programs and advertising standards. Prediction market users have recourse through a different and less gambling-specific regime.

What to Watch Next

• The CFTC final rule. Whether the proposed sports contract prohibitions survive the comment period substantially intact.
• Circuit splits. A conflicting ruling in another circuit would accelerate the path to Supreme Court review of the preemption question.
• State legislative responses. Several states are considering statutes explicitly addressing prediction markets rather than relying on existing gambling definitions.
• Platform adaptation. Whether Kalshi and competitors pivot toward non-sports contracts or pursue state licensing as a hedge.

Frequently Asked Questions

Are sports prediction markets legal in the US?

The answer is genuinely contested and varies by state. Platforms operate under CFTC registration and argue federal preemption; several state regulators disagree and are pursuing enforcement. The Ninth Circuit's August 2026 ruling favored the state position on the specific procedural question before it.

How are prediction markets different from sportsbooks?

Prediction markets are peer-to-peer exchanges where users trade contracts against each other, with the platform earning fees. Sportsbooks set odds and take the other side of bets. The economic function for a user placing a wager on a game outcome is broadly similar.

What did the CFTC propose in June 2026?

A rule revising Rule 40.11 and adding a procedural framework, which would bar certain sports contracts including those tied to officiating decisions and player injuries.

Could the Supreme Court hear this?

It is plausible. The preemption question is being litigated in multiple circuits, and a split among them would substantially increase the likelihood of review.

Bottom Line

2026 is the year prediction markets stopped growing unchecked. The Ninth Circuit ruling and the CFTC's proposed restrictions do not end sports event contracts, but they end the assumption that federal registration is a shield against state gambling law. The next twelve months of litigation will determine whether this sector becomes a regulated parallel to sports betting or is folded into it.

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