A trio of prediction market companies faced tough questions on Thursday from a skeptical federal appeals court panel over whether they should be subject to Nevada’s state gaming regulations or more lax federal regulation.
A three judge panel on the U.S. Court of Appeals for the Ninth Circuit heard arguments from three prediction market companies, Crypto.com, Robinhood, and Kalshi, along with a lawyer from the Commodity Futures Trading Commission and the state of Nevada, over who has the authority to regulate the platforms. The three prediction markets and the CFTC argued that the federal government should have supremacy to regulate the prediction markets, while Nevada argued that states should have control over regulating the prediction markets as gambling.
The panel appeared highly skeptical of the arguments from the three prediction markets, with U.S. Circuit Judge Ryan Nelson, an appointee of President Donald Trump, leading the charge with several sharp questions.
Shay Dvoretzky, a lawyer representing Crypto.com, argued that the prediction markets, which let users make trades on the probability of outcomes across sports, politics, pop culture, and more, are structurally different from sportsbooks, and should therefore fall under the purview of laws regulating derivatives markets.
Nelson hammered the lawyers for the three prediction markets over whether Congress had intended to give the federal government wide regulatory power over them, and he appeared unconvinced with their claims that the prediction markets are different in function from a sportsbook.
U.S. Circuit Judge Bridget Bade, a Trump appointee, questioned William Havemann, a lawyer for Kalshi, over an advertisement the prediction market ran touting that “sports betting [is] legal in all 50 states on Kalshi” and whether it matters how people participating in their product view it: as either a prediction market or a sportsbook.
“It seems like they are advertising this as sports betting, so that people who are participating think that they’re engaging in gaming and betting, and perhaps are not as sophisticated as people who would traditionally be involved in in the trading on futures commodities. Does that matter?” Bade asked Havemann.
Havemann argued that it is not legally relevant what the participant views the transaction as, also noting that “there are marketing people that always make the lawyers a little bit uncomfortable,” in reference to the advertising campaign.
Nicole Saharsky, arguing on behalf of Nevada, told the panel that what the prediction markets want would be a “severe intrusion on state sovereignty,” saying that “the consequences of their position is that all sports bets would qualify as swaps” and all sports bets would also be subject to federal regulation as opposed to state regulation.
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The panel did not indicate when it would rule on the case, but if the three-judge appellate panel sides with Nevada officials, it could create a split on the issue among the federal appeals court circuits. Earlier this month, the U.S. Court of Appeals for the Third Circuit sided with Kalshi over New Jersey officials in finding that the CFTC has jurisdiction over the state to regulate its product.
The Ninth Circuit case is one of several lawsuits across federal courts brewing over the rapidly growing prediction market industry and whether states or the federal government have jurisdiction to regulate it. With the issue making its way through the federal courts, it appears poised to reach the Supreme Court in the coming years.