Ninth Circuit ruling against Kalshi a boost for DraftKings and FanDuel, analyst says
A “near-term positive” has come for DraftKings and for FanDuel parent Flutter Entertainment, according to J.P. Morgan analyst Daniel Politzer. In a 28 August investor note Politzer highlighted how shares of both had shot up on the heels of a favorable ruling from the Ninth Circuit Court of Appeals.
The appellate court ruled 3-0 that Kalshi’s sports-event contracts were “sports gambling, regardless of whether Kalshi calls them swaps.” Politzer observed that this set up a near-inevitable Supreme Court case, given that the Third Circuit Court of Appeals had found that oversight of sports-event contracts was the purview of the Commodity Futures Trading Commission (CFTC).
In the immediate term, Politzer contended, adverse legal momentum against Kalshi and its need to be geofenced would work in favor of incumbents DraftKings and FanDuel. It also would, he said, enhance handle in states where Kalshi was curbed, such as Nevada, Massachusetts, Michigan and Washington State. As for the Supreme Court, it could potentially dispel “a major overhang” of uncertainty by ruling yea or nay on sports-related event contracts.
The Ninth Circuit opined that “Kalshi has not shown a likelihood that the [Commodities Exchange Act] preempts state gaming regulations as applied to its sports event contracts.” It further held that “For Kalshi to deny that its sports event contracts are sports bets under a reasonable person’s understanding is disingenuous.”
According to the judges of the Ninth Circuit, “Kalshi’s sports event contracts do not help institutions or investors hedge against risk; they create risk, largely for ordinary consumers, where none previously existed.”
They went on to observe that Kalshi was capable of being geofenced in Nevada but it just didn’t want to, in hopes that noncompliance would gain it a competitive advantage. The judges also held that there was no evidence that Kalshi would violate the Commodities Exchange Act by coming to terms with gambling laws in Nevada.
Cases involving Kalshi and sports betting still pend in the Fourth and Sixth Circuits.
In the former, supplemental filings were open as late as 24 July on a case that had been heard in May. In the latter, the court will be attempting to resolve conflicting rulings for and against Kalshi, from Ohio and Tennessee. Oral arguments were heard 30 July.
David McKee is an award-winning journalist who has three decades of experience covering the gaming industry.
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The Backstory
Prediction markets move from sideshow to central threat
The fight over Kalshi’s sports-event contracts has quickly become one of the most consequential legal and commercial disputes in U.S. online wagering. What began as a jurisdictional argument over whether contracts tied to game outcomes are federally regulated derivatives or state-regulated sports bets now cuts directly into the business models of DraftKings, FanDuel and other licensed operators.
The stakes are straightforward. If exchanges can offer sports-linked contracts nationwide under Commodity Futures Trading Commission oversight, they could reach customers in states that have not legalized sports betting and potentially avoid the state-by-state licensing, tax and responsible-gaming regimes that define online sports betting. If courts instead determine those products are gambling, prediction-market operators would face geofencing, licensing barriers and enforcement actions that strengthen the position of incumbents.
That tension explains why the latest appellate decision is being read not only as a legal development but also as a market signal. J.P. Morgan analyst Daniel Politzer has repeatedly framed the issue as a major overhang for gaming equities. In early September, he wrote that prediction markets were “too good to pass up” for online sports betting operators, even as he warned that entering the space would risk backlash from regulators, tribes, sports leagues and responsible-gaming advocates.
A split legal map raises the odds of Supreme Court review
The legal terrain has become fragmented. Kalshi has won important early rulings in some jurisdictions, while regulators have gained traction elsewhere. That split is why analysts, litigants and state officials increasingly view Supreme Court review as likely.
In Tennessee, Kalshi secured a significant victory when U.S. District Judge Aleta Trauger granted a preliminary injunction blocking state officials from enforcing local gambling laws against its sports-related event contracts. Trauger accepted Kalshi’s argument that the products fall under the Commodity Exchange Act and qualify as swaps, putting them beyond Tennessee’s sports wagering rules for the time being. The ruling, detailed in a federal injunction granted to Kalshi in Tennessee, underscored the company’s preferred theory: that federal commodities law preempts state gambling enforcement.
But the Tennessee decision also highlighted how unsettled the doctrine remains. Appellate litigator Andrew Kim noted on X that Trauger’s reasoning departed from a Nevada ruling by Judge Andrew Gordon, who had taken a different view of whether sports-event contracts are swaps. That divergence matters because the cases are not merely about one company’s product design. They ask whether the language of commodities law can be used to offer sports-outcome products that look, to state gambling regulators, like unlicensed betting.
Other appeals remain pending. Cases in the Fourth and Sixth circuits could deepen or resolve regional conflicts, while the Ninth Circuit has now taken a position sharply adverse to Kalshi. The result is a patchwork in which access to sports-event contracts can depend on geography, procedural posture and the court hearing the dispute.
Nevada has become the enforcement test case
Nevada’s role is especially important because it is the country’s most mature gambling regulatory market and has moved aggressively against prediction-market operators. The Nevada Gaming Control Board has pressed Kalshi and Crypto.com over sports-event contracts, arguing that the products fall within the state’s gambling oversight when offered to Nevada residents.
The dispute has moved beyond abstract legal theory into compliance mechanics. In August, Nevada regulators argued that Kalshi failed to meet a court-ordered deadline to geofence certain event contracts from state residents. The NGCB said investigators could still access restricted markets on mobile devices and sought daily fines of $120,000. Kalshi countered that investigators misrepresented their residence and said it had used a state-approved vendor to implement geofencing. That fight, covered in Nevada regulators’ claim that Kalshi failed to comply with a court order, illustrates how enforcement will hinge not only on legal classification but also on technical controls.
Geofencing is central to the economic stakes. If Kalshi and similar platforms must block access in states where regulators object, their addressable market shrinks and licensed sportsbook operators retain a protected advantage. If they can resist state enforcement under federal law, they may be able to serve customers in markets where traditional operators remain excluded.
Nevada’s dispute also signals why state regulators are unlikely to stand down. Their objections include tax avoidance, consumer-protection gaps and the risk that federally regulated platforms will undermine state licensing frameworks built after the repeal of the federal sports-betting ban. For states that have invested years in sports-wagering rules, the prediction-market model looks less like innovation and more like regulatory arbitrage.
Incumbent sportsbooks face temptation and risk
For DraftKings and FanDuel, prediction markets are both a competitive threat and a possible growth channel. Politzer has argued that large online sports betting operators would be well positioned if they entered the category because of their brands, customer databases and marketing capabilities. The lure is particularly strong in large states such as Texas, Georgia and California, where sports betting remains illegal or politically stalled.
In his September analysis, Politzer estimated that applying online sports betting handle patterns from legal states to nonlegal states could imply a $131 billion opportunity, though he cut that estimate to $62 billion after factoring in product and marketing limitations. He projected that a successful move into sports prediction markets could produce hundreds of millions of dollars in cash-flow upside for the largest operators.
Yet entry is not simple. DraftKings and FanDuel depend on relationships with state regulators, tribes, leagues and lawmakers. Those same stakeholders are among the most vocal critics of sports-linked event contracts. A sportsbook operator that aggressively uses federal prediction-market rails to reach prohibited states could damage its prospects for future legalization campaigns or online casino expansion.
That leaves incumbents in a defensive posture. They can watch Kalshi test the boundaries and risk losing first-mover advantage, or they can enter a legally uncertain market and risk political blowback. Politzer described that bind as being between a rock and a hard place, a phrase that captures the strategic dilemma facing the sector as football season drives customer acquisition and trading volume.
Investor sentiment has swung with each ruling
The market has treated prediction-market news as a proxy for the future profitability of online sports betting. DraftKings and Flutter, FanDuel’s parent, have seen sharp stock moves around Kalshi developments, reflecting investor concern that tax-free or lightly taxed exchanges could undercut sportsbook margins.
Politzer pushed back against some of the most bearish assumptions in an October note arguing prediction-market fears were overhyped. He said investors were reacting as if Kalshi’s product advances had breached the last barrier protecting incumbent sportsbooks, while discounting the advantages DraftKings and FanDuel have built in product quality, brand awareness and scale. He also questioned how a peer-to-peer exchange could match the liquidity and risk management capacity required to offer parlay-like products at sportsbook scale.
Still, the concern is not baseless. Sportsbooks already face volatile hold rates, rising state taxes and slowing handle growth in mature markets. Prediction markets introduce a potential competitor that may not be subject to the same taxes or promotional constraints. Even if Kalshi cannot match the depth of a FanDuel or DraftKings product immediately, it can pressure investor expectations and force incumbents to explain how they will defend margins.
Flutter’s position shows the sensitivity. In August, Politzer called Flutter a “show-me story” as FanDuel sought to regain momentum after market-share erosion and leadership changes. His analysis of Flutter’s effort to regain its U.S. online sports betting momentum tied the company’s underperformance partly to prediction-market uncertainty, along with slower handle growth and operating challenges.
The decision may define the next phase of U.S. wagering
The current ruling matters because it pushes the industry closer to a binary resolution. Either sports-event contracts are treated as federally regulated financial products that can coexist uneasily with state gambling systems, or they are deemed sports bets subject to state licensing and enforcement. The answer will shape market access, tax flows and consumer protections.
For regulators, a decision against Kalshi supports the argument that state gambling laws cannot be sidestepped through labeling. For incumbents, it preserves the value of licenses, tax compliance and years of lobbying. For prediction markets, it threatens the core expansion thesis that federally supervised contracts can reach beyond the sports-betting map.
The causality is clear: Kalshi’s push into sports outcomes triggered state enforcement, conflicting court rulings created appellate uncertainty and that uncertainty has moved public gaming stocks. Until higher courts settle the preemption question, each ruling will carry outsized weight. The legal distinction between a swap and a sports bet has become a defining commercial question for U.S. wagering.
