The legal status of sports prediction markets got less certain in 2026, not more. As of September, two federal appeals courts have landed on opposite answers, the CFTC has proposed new limits on what these markets can offer, and roughly 44 states have contested Washington’s authority over them. If you operate or advise in this space, here’s the state of play heading into Q4.
A genuine circuit split
On April 6, 2026, the Third Circuit ruled in KalshiEX LLC v. Flaherty that the Commodity Exchange Act preempts state gambling law as applied to sports-related event contracts on CFTC-registered markets. In a 2-1 decision, the court treated Kalshi’s sports event contracts as “swaps” and affirmed an injunction barring New Jersey from enforcing its gambling laws against them.
Then on August 28, 2026, the Ninth Circuit went the other way. It found Kalshi hadn’t shown that federal commodities law preempts state gaming regulation of its sports event contracts, and it let the injunction that had blocked state enforcement dissolve. So Kalshi lost the protection it won elsewhere. Two appeals courts, opposite conclusions, same core question. That’s the kind of split that tends to end up at the Supreme Court.
The CFTC is moving too
In June 2026, the CFTC proposed a rule that would bar certain sports-related event contracts, including ones tied to officiating outcomes or player injuries, and add a public-interest review framework for these products. Even if the agency wins the jurisdiction fight, the rule signals that the menu of allowable contracts could narrow. Operators counting on a wide-open product set should read the proposal closely.
The states aren’t backing down
Roughly 44 states signed a letter to the CFTC arguing it doesn’t have authority over sports-related event contracts, and state regulators in several states kept pressing enforcement against Kalshi through the year. So the dispute is running on three tracks at once: the courts, the agency’s rulemaking, and a coordinated push from the states. None of the three has produced a settled answer.
What it means for operators
- Don’t treat these products as legal nationwide. Whether you can offer a sports event contract now depends on your circuit and the states you touch, and those answers currently conflict.
- Watch the CFTC’s final rule. It could take specific contract types off the table regardless of how the preemption fight resolves.
- Track the litigation calendar. A circuit split raises the odds of Supreme Court review, which could reset the ground rules.
- Get a legal read before you launch or expand a sports event-contract product, not after a state regulator calls.
BCA advises gaming and fintech operators on how to structure compliance around unsettled rules like these, and we’re expanding our coverage of prediction markets as the law develops. When a matter turns on legal interpretation, BCA brings in the right licensed counsel.
Educational information only, not licensed legal, tax, or financial advice. We refer to and partner with licensed professionals when personalized advice is needed. Laws change; no warranty of accuracy or timeliness.
Newman Law is BCA’s legal partner.
Sources
- KalshiEX LLC v. Flaherty, U.S. Court of Appeals for the Third Circuit (April 6, 2026); analysis by Paul Weiss and Holland & Knight.
- U.S. Court of Appeals for the Ninth Circuit, Kalshi sports event contracts opinion No. 25-7516 (August 28, 2026); analysis by Arnold & Porter.
- CFTC proposed rule on prediction markets and event contracts, Federal Register (June 2026); Congressional Research Service Legal Sidebar LSB11441.
- State attorneys general letter to the CFTC on sports-related event contracts (2026).