US Court Rules Against Polymarket & Kalshi In Nevada, Washington Lawsuit

Another legal setback came for prediction market operators Kalshi and Polymarket. A federal appeals court refused to stop gambling-related lawsuits against them in Nevada and Washington.

Polymarket, Kalshi Lose Bid In US Court

Judges on the Ninth Circuit Court of Appeals, in rulings made on Thursday, denied emergency motions from both companies. In these petitions, they asked for temporary delays of lower-court rulings until they could make arguments that the cases belong in federal rather than state court. The panel concluded the companies did not show they had a good chance of winning on that point.

The cases are related to increasingly troubled relations between state gambling regulators and federally-regulated prediction markets like Polymarket and Kalshi. These platforms trade on the results of sporting, political and other events.

For context, they have both said that the regulation of such products is within the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC). Moreover, they contend that this regulation preempts enforcement efforts by the states.

Nevada authorities have said they have been unhappy about the lack of state gaming licenses on both platforms. Further, officials in Washington state have accused Kalshi of offering illegal gambling products based on contracts that depend on sports results.

The judges on appeal said the companies’ reliance on federal preemption arguments was not enough to automatically transfer the cases to federal court. They stated that raising a defense under the Commodity Exchange Act does not establish a federal question that could transfer the case out of state courts.

Nor was the panel buying into Polymarket’s argument that it complied with federal regulatory requirements. Therefore, they believe that it is subject to federal control.

According to judges, just following federal rules does not make a private company act on the part of a federal officer. Polymarket took this legal hit today coinciding with a hack on its private keys.

Authorities Divided On Prediction Market Regulation

Meanwhile, the new decisions contribute to a more complex legal environment surrounding prediction markets in the U.S. A New Jersey appeals court earlier this year had ruled in favor of Kalshi, ruling that state officials could not limit sports event contracts on the platform.

However, the same hasn’t been the case in judges in several other states, such as Maryland, Ohio and Nevada. These courts recently have been more approving of state gambling officials.

In April, Nevada Judge Jason Woodbury ruled that restrictions on Kalshi’s sports-related contracts also should remain in place. He argued that the products were substantially similar to wagers by licensed sportsbooks.

In the meantime, the CFTC and U.S. Department of Justice have attacked enforcement actions by several states. They say it will disrupt federally regulated derivatives markets.

Nonetheless, the U.S. House panel initiated an investigation into Polymarket and Kalshi.