Prediction market platforms Kalshi and Polymarket lost their bids to stop gambling-related cases against them in Nevada and Washington on Thursday, as a Ninth Circuit Panel denied their requests to block lower-court rulings. The court sent the cases back to state court, ruling that the companies failed to demonstrate the cases belonged in federal jurisdiction. Nevada and Washington contend that prediction market contracts constitute unlicensed gambling under state law, while Kalshi and Polymarket have argued the Commodities and Futures Trade Commission holds exclusive authority over event outcome contracts in areas like sports and politics. This decision represents a setback for federally regulated prediction market platforms seeking to overturn state-level enforcement actions.
Court Ruling on Federal Jurisdiction
The Ninth Circuit Panel stated that Kalshi and Polymarket's federal preemption defenses did not automatically create federal question jurisdiction. "The CEA preemption defense is an affirmative defense, which cannot by itself give rise to federal question jurisdiction," the panel wrote in its orders.
The court also rejected Polymarket's argument that it was operating under federal direction by complying with CFTC oversight requirements. "Polymarket's actions merely demonstrate its own compliance with federal law, which cannot alone show that it is acting under a federal officer," the judges wrote.
State Gambling Enforcement Actions
Nevada's cases against Kalshi and Polymarket center largely on the platforms' lack of gaming licenses. Washington's lawsuit focuses on whether Kalshi offers illegal gambling products. In April, Nevada state Judge Jason Woodbury extended a ban on Kalshi's sports-related contracts, calling the offerings "indistinguishable" from placing bets through licensed sportsbooks.
Broader Regulatory Conflict
Courts in multiple states have increasingly sided with state gambling regulators. Earlier this year, a New Jersey appeals court sided with Kalshi and upheld an injunction blocking the state's efforts to stop sporting event outcome contracts. However, courts in Ohio, Maryland, and Nevada have ruled against the prediction market platforms.
The CFTC and DOJ have launched a counteroffensive against several states, including Minnesota, Illinois, Arizona, and Connecticut, arguing that they are unlawfully interfering with federally regulated derivatives markets.
