9th US Circuit Court Issues Landmark Ruling on Prediction Markets: Federal Derivative Shield Crumbles

The 9th US Circuit Court of Appeals ruled that prediction market contracts tied to sports events are not federal derivatives, affirming Nevada Gaming Control Board's authority.

Judicial Reasoning and Legal Landscape

The court dismissed injunction requests from Kalshi and Crypto.com, classifying sports‑related contracts as "bets" rather than swaps. Despite the CFTC's claim that all event contracts are swaps, the 9th Circuit labeled the argument as a "new, textualist exception".

Market Participants React

■Robinhood announced plans to appeal the decision.

■The Nevada Attorney General's Office hailed the ruling as a victory for state jurisdiction.

■The CFTC maintained that the ruling is erroneous, emphasizing that a swap remains a swap regardless of its underlying subject.

Stock Market Ripple Effects

The regulatory uncertainty surrounding prediction markets buoyed online sportsbook equities:

■DraftKings shares jumped 7%.

■Flutter Entertainment (parent of FanDuel) rallied over 6%.

The Road to the Supreme Court

By contradicting a 3rd Circuit decision that granted the CFTC exclusive jurisdiction, the 9th Circuit created a classic "circuit split." Legal scholars anticipate the dispute will soon ascend to the US Supreme Court, shaping the future regulatory framework for prediction markets.

Markets view this ruling as amplifying the ambiguity over whether prediction contracts are financial instruments or traditional sports betting. In the short term, sportsbook stocks benefit, while fintech firms and the CFTC will re‑price regulatory risk. Over the longer horizon, the Supreme Court's eventual decision will be a pivotal moment for the global expansion of prediction markets.