Circuit Split Looms as Ninth Circuit Weighs Legality of Prediction Market Sports Contracts

A potential circuit split in the Ninth Circuit could lead the US Supreme Court to settle the multi-billion dollar fight over sports event contracts and gambling.

By: AXL Media

Published: Apr 25, 2026, 9:13 AM EDT

Source: Information for this report was sourced from iGB (iGaming Business)

The Battle for Federal Preemption

The US Court of Appeals for the Ninth Circuit recently heard a consolidated appeal from Nevada that could fundamentally reshape the legal landscape for prediction markets. At the heart of the dispute is whether Designated Contract Markets (DCMs), such as Kalshi and Crypto.com, are subject to exclusive federal oversight under the Commodity Futures Trading Commission (CFTC) or if individual states retain the right to ban their offerings as illegal gambling. This hearing follows a significant victory for operators in the Third Circuit, which recently blocked New Jersey from prohibiting similar sports event contracts.

Distinguishing Hedging from Wagering

During the San Francisco proceedings, attorneys for prediction platforms argued that their products are distinct from traditional sports betting. Shay Dvoretzky, representing Crypto.com, posited that while a wager at a traditional sportsbook is a bet against "the house," event contracts are trades on an open market designed for risk management. He argued that these financial instruments allow parties to hedge against economic outcomes rather than merely gambling on a winner. However, US Circuit Judge Ryan Nelson expressed skepticism, characterizing the distinction as "sophistry" and questioning how an NFL Draft contract differs in substance from a standard prop bet.

Impact on Traditional Gaming Revenue

The legal pushback from states like Nevada coincides with a noticeable shift in consumer behavior. Nevada recently reported a 10-year low in Super Bowl betting handle, which fell 11% from 2025 to $133.8 million. State officials point to the emergence of prediction markets and platforms like Robinhood as primary drivers of this decline. By categorizing these trades as violations of state gaming law, Nevada seeks to protect its regulated gambling industry from what it views as unlicensed competition operating under the guise of financial derivatives.