Ninth Circuit gives bad beat to online sports-betting exchanges

During an April hearing, the appeals panel at times seemed doubtful of arguments from the exchanges.SAN FRANCISCO (CN) — The Ninth Circuit on Friday dealt prediction markets a bad hand, with judges saying they saw little difference between a sports-betting platform and a designated contract market.In one of three prediction-market cases decided Friday, a three-judge appeals panel affirmed a lower court’s decision to dissolve a preliminary injunction that had favored KalshiEX. That injunction had stopped Nevada from regulating KalshiEX’s sports- and election-event contracts on its designated contracts market.KalshiEX, along with the North American Derivatives Exchange and Robinhood Derivatives, argued their sports event contracts fell under the oversight of the Commodity Futures Trading Commission, a federal agency. Nevada said the contracts intruded on state sovereignty, arguing little light existed between the exchanges’ sports-event contracts and gambling.The companies filed separate suits, which the appeals court consolidated for argument.It appeared likely that the companies might roll snake eyes. In an April hearing, one judge called their arguments “sophistry to the nth degree.”On Friday, the judges showed they were not bluffing.“We conclude that Kalshi has not shown a likelihood that the [Commodity Exchange Act] preempts state gaming regulations as applied to its sports-event contracts and that the district court did not abuse its discretion by dissolving the injunction,” wrote U.S. Circuit Judge Ryan Nelson, a Donald Trump appointee.The two other rulings, much shorter than the panel’s 50-page KalshiEX ruling, also favored Nevada.In his ruling, Nelson wrote his court has the power to determine what constitutes a “swap,” or contract on the exchange. He noted that Nevada isn’t challenging a commission decision about KalshiEX’s contracts or arguing it violated the Commodity Exchange Act. Instead, the state wants to enforce its own law about what qualifies as a wager.The act doesn’t allow states to regulate swaps traded on a designated commodities market. Still, Nelson wrote that KalshiEX overplayed its hand when it argued state law is subordinate to all transactions on designated contract markets. He said that wasn’t accurate, as spot contracts can be traded on those markets and don’t fall under the commission’s jurisdiction.“Here, there is no dispute Kalshi’s sports event contracts are traded on a DCM,” Nelson wrote. “Thus, the dispositive issue is whether the sports event contracts are ‘swaps’ under the CEA’s definition."“The parties cite various legislative history to define swap. But we do not use legislative history to ‘look over the heads of the crowd and pick out [our] friends,’” he added, citing former U.S. Supreme Court Justice Antonin Scalia.Add to this an advertisement for KalshiEX, in which it calls itself “the first app for legal sports betting in all 50 states.” Sports betting is a kind of gambling, Nelson wrote.“The crucial context that leads us to resist the broadest possible reading is that Kalshi has a gambling problem,” Nelson said. “Kalshi describes and markets its sports-event contracts offered on its DCM as ‘legal sports betting.’ Yet it argues that sports bets and sports-event contracts are different.”Nelson gave two examples: someone making a sports bet at a Las Vegas casino and getting more money than wagered when their team wins by over 7.5 points. He compared that to someone buying an event contract on the KalshiEX app and receiving more money in return if their choice team wins by over 7.5 points.Both are gambling contracts, he added, meaning sports-event contracts are sports gambling, regardless of what KalshiEX calls them.Affirming the lower court’s decision to dissolve the preliminary injunction that stopped Nevada from enforcing its laws, the appeals panel remanded the state’s challenge to KalshiEX’s election contracts for consideration consistent with Friday’s decision.“We respectfully disagree with the court’s decision today and intend to appeal,” a Robinhood spokesperson said in a statement to Courthouse News. “As we’ve previously shared, every eligible customer should have access to these markets, which are federally regulated by the CFTC and offered through our CFTC-registered Futures Commission Merchant.”The Nevada Attorney General’s Office, KalshiEX and North American Derivatives Exchange couldn’t be reached for comment.U.S. Circuit Judges Bridget Bade and Kenneth Lee, also Trump appointees, rounded out the panel.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads