Ninth Circuit Judges Express Sharp Skepticism Over Prediction Markets’ Claims to Federal Preemption in Nevada Case

Ninth Circuit judges question if prediction markets are just "sophistry" for gambling, signaling a major legal hurdle for Kalshi and Robinhood in Nevada.

By: AXL Media

Published: Apr 18, 2026, 10:54 AM EDT

Source: Information for this report was sourced from Gambling Insider

Judiciary Challenges the "Innovation vs. Gambling" Narrative

The Ninth Circuit Court of Appeals has signaled a potential setback for prediction markets seeking to operate outside state gambling jurisdictions. In a consolidated case featuring Crypto.com, Robinhood, and Kalshi against the state of Nevada, the panel expressed profound discomfort with the industry's efforts to rebrand sports betting as federally regulated "swaps." Judge Ryan Nelson was particularly vocal, dismissing the technical distinctions offered by plaintiffs' counsel as "sophistry to the nth degree" and asserting that the core activity remains identical to sportsbook wagering.

Market Structure Defense Faces Strict Scrutiny

Attorneys for the prediction markets argued that their platforms differ from sportsbooks because they utilize market mechanisms and price discovery rather than bookmaker odds. However, the bench remained unconvinced, with Judge Nelson comparing the transaction to a roulette bet where the underlying outcome remains constant regardless of the venue. Nevada’s counsel, Nicole Saharsky, reinforced this by noting that many "house-less" activities, such as lotteries, are still regulated as gambling, and that market makers effectively serve as the house in many event-based contracts.

The "Swap" Definition and Congressional Intent

A central point of contention involved the Commodity Exchange Act (CEA) and its definition of swaps. While prediction market attorneys argued that the Dodd-Frank Act broadly covers contracts tied to the occurrence of an event, the court questioned whether Congress ever intended to transfer jurisdiction over sports gaming from the states to the CFTC. The judges expressed concern that accepting the industry's broad interpretation would effectively turn the CFTC into a national gaming regulator, a shift that would severely intrude upon state sovereignty.