Circuit Split Sets Up Showdown on Prediction Market Regulation
The Ninth Circuit has ruled that federal commodity law does not preempt state gaming regulations for sports-related prediction markets, creating a direct conflict with the Third Circuit.
The US Court of Appeals for the Ninth Circuit ruled on August 28, 2026, that sports-event contracts on prediction markets are not "swaps" under the Commodity Exchange Act (CEA), holding that federal law does not preempt state gambling regulations. The decision creates a direct circuit split with the Third Circuit, which had previously ruled in favor of federal preemption. The conflict injects significant legal and regulatory uncertainty into the rapidly growing prediction market industry, which saw trading volumes of $51 billion in 2025.
Sophisticated counsel and clients in the finance and gaming sectors care because operators like Kalshi and Polymarket now face a fractured regulatory landscape, potentially needing to comply with disparate state gaming laws in the Ninth Circuit while operating under a different, federally regulated regime elsewhere. This complicates business operations and increases compliance costs. The confirmed split makes the issue a strong candidate for Supreme Court review.
Key developments to watch are whether a petition for a writ of certiorari is filed with the Supreme Court by the September 3, 2026, deadline in the Third Circuit case, and how the CFTC proceeds with its own proposed rulemaking to define "gaming" under the CEA.