Second Appeals Court Win for States Over Kalshi Sports Contracts

Prediction market platforms have suffered another courtroom setback. A federal appeals court has ruled that states have a legitimate role in regulating sports-related event contracts, siding against Kalshi in a dispute over who gets to police these products.

The ruling is the second of its kind from an appeals court in less than a month. Two decisions in quick succession make it harder for the industry to dismiss the outcome as a one-off, and they strengthen the hand of state gaming regulators who have argued that sports contracts look and function a lot like sports betting.

At the heart of the fight is a question of jurisdiction. Kalshi and similar platforms have maintained that their event contracts are financial derivatives overseen at the federal level, which would leave states with little authority to intervene. States counter that contracts tied to the outcome of games are wagers in all but name, and that operators offering them to residents should answer to local gambling laws, licensing rules and consumer protections.

The appeals court sided with the states on the core point that they may regulate this activity. The decision does not by itself settle every question around prediction markets, and further appeals or related litigation remain possible. But it adds weight to a growing body of rulings that cut against the federal-only argument.

For investors and the wider market, the practical stakes are significant. Sports contracts have been among the busiest and most visible offerings on prediction platforms, driving user growth and attracting mainstream attention. If states can restrict or shut down those markets, platforms could face a patchwork of rules, potential enforcement actions and pressure to geofence products in certain regions. That would complicate growth plans for companies that have positioned event contracts as a new class of financial product.

The ruling also raises the odds of a clash that ends up before a higher court. When federal appeals courts line up on one side of a question with this much money and regulatory power at stake, the issue often draws the attention of the Supreme Court, particularly if other circuits reach different conclusions.

For now, the message from the bench is consistent. States are not locked out of the sports prediction market, and platforms that built their business on that assumption have a growing legal problem to manage.