The appeals court found sports betting isn’t shielded by the federal law used to block Kris Mayes’ prosecution
(Photo by Anne-Marie Caruso/New Jersey Monitor)
A federal judge’s order blocking Arizona from prosecuting online prediction market company Kalshi for violating the state’s gambling laws is living on borrowed time after the 9th U.S. Circuit Court of Appeals ruled that gambling on sporting events is not protected by the federal law that otherwise allows prediction market firms to operate.
The ruling, which came in a similar but separate Nevada case, directly undercuts the rationale used by federal Judge Michael Liburdi earlier this year when he issued an injunction stopping Arizona Attorney General Kris Mayes from prosecuting Kalshi and suing the firm for violating Arizona’s gambling laws and a law that makes it illegal to bet on election outcomes in the Grand Canyon State.
Arizona could use the Nevada decision to argue that Liburdi should allow the Arizona case to proceed.
In its ruling that upheld a lower court’s decision to dissolve an injunction allowing Nevada regulators to bar Kalshi from offering trades — known as “swaps” in the commodities market, referring to a contract whose value depends on some future outcome — on sporting events, the three-judge panel concluded that sports events don’t qualify as “swaps,” and thus aren’t protected by federal law.
In May, Liburdi sided with Kalshi’s broad reading of the federal Commodity Exchange Act and concluded that sporting events qualify as “events” and “occurrences” under that law, meaning they can only be regulated by the Commodity Futures Trading Commission, the federal agency that oversees prediction markets. And that agency has largely declined to stop companies like Kalshi from accepting bets on virtually anything they want, including sports and elections.
But on Friday, the appellate judges — all of whom were appointed by President Donald Trump — rejected that view, holding that reading “event” to mean “outcome” is an “archaic or rare usage,” and that the words “event” and “occurrence” must carry independent meaning.
As an example, the court explained that whether the Super Bowl happens is an “occurrence,” but who wins it is not.
“Congress did not take a wrecking ball to all sports gambling regulations built up over decades by federal, state, and tribal governments when it amended the (Commodity Exchange Act),” Judge Ryan Nelson wrote in the unanimous decision.
Mayes’ office initiated an appeal of Liburdi’s ruling, but the 9th Circuit put the appeal on hold until it considered other cases centering on states attempting to regulate Kalshi and other prediction markets, including this Nevada case. Now that the appeals court has sided with states, it paves the way for Liburdi’s injunction to be dissolved.
“This is a significant win for states’ authority to regulate gambling operations. Calling a sports bet a ‘swap’ doesn’t make it one,” Mayes said in a statement celebrating the ruling. “States like Arizona have built a comprehensive system to regulate gaming and today’s ruling affirms those regulations.”
The 9th Circuit, Mayes added, “clearly” explained in its ruling in the Nevada case that the federal law regulating commodities “was never intended to strip states of their traditional police power over gambling.”
“Kalshi’s position would have effectively federalized sports betting regulation nationwide and swept aside decades of state and tribal oversight built to protect consumers from the real harms of unregulated gambling,” Mayes continued.
Mayes’s office said it was reviewing the ruling. From a practical standpoint, Arizona can now ask the 9th Circuit or Liburdi to lift the injunction based on the ruling in this case. If it succeeds, the state’s stalled 20-count criminal case against Kalshi could resume.
The 9th Circuit ruling splits from an earlier ruling earlier this year by judges in the 3rd U.S. Circuit Court of Appeals, which sided with Kalshi and found that states have no authority to stop prediction markets from taking bets on sporting events.
The three Trump-appointed judges repeatedly and directly explained why they viewed the 3rd Circuit ruling as faulty. At its core, the 9th Circuit ruling says that Congress was not “hiding an elephant in a mousehole” when it amended the Commodity Exchange Act by upending “decades of careful regulation of gambling” at the state and federal levels.
And the judges invoked the major questions doctrine, the principle that federal agencies can’t transform old laws into new laws through expansive statutory interpretation, teeing up a battle in the U.S. Supreme Court. Interpreting the Commodity Exchange Act to hand the Commodity Futures Trading Commission authority over sports betting — a multibillion-dollar field historically regulated by states and tribes — would be an “extraordinary” grant of authority requiring clear congressional authorization that has never happened, Nelson wrote.
