How Kalshi Can Use Ninth Circuit Ruling to Help Its Cause, According to Law Professor Melinda Roth

The Ninth Circuit delivered what looked like a knockout punch to Kalshi on Friday, ruling unanimously that the prediction market operator's sports betting markets do not qualify for exemption under state gambling laws. But a closer read of the decision reveals strategic openings for Kalshi's legal team, according to law professor Melinda Roth.

The three-judge panel rejected Kalshi's core argument that its contracts fall outside traditional sports betting regulation. The decision flatly contradicts Kalshi's position that prediction markets deserve special treatment compared to conventional sportsbooks. On its surface, the ruling appears catastrophic for the company's expansion plans and its ability to operate sports markets across the country.

Yet Roth, analyzing the judgment's language and reasoning, identified specific passages that Kalshi can leverage in future appeals or regulatory arguments. The panel's reasoning, while unfavorable overall, contains nuance that creates potential pathways forward. Rather than issuing a sweeping condemnation of prediction markets as a category, the judges grounded their decision in narrow statutory interpretation. That distinction matters enormously in appellate work.

Kalshi operates prediction markets that allow users to bet on event outcomes with binary contracts. The operator has positioned itself as fundamentally different from traditional sportsbooks, arguing its products fall under different regulatory frameworks. The Ninth Circuit rejected this distinction, finding that state sports betting laws apply regardless of how the product is packaged or branded. The court determined that the functional reality of the transaction overrides the structural differences Kalshi emphasizes.

Where Roth spots opportunity is in the panel's specific language around federal regulatory authority and the Commodity Futures Trading Commission's role. The judges acknowledged jurisdictional questions that remain unsettled. They did not foreclose the possibility that federal commodity regulation could preempt certain state restrictions. Kalshi's lawyers can extract language from the decision suggesting that alternative regulatory pathways exist, even if the current state-based approach prevails.

The ruling also creates a split in how different circuits might view prediction markets. A Ninth Circuit loss does not bind courts in other regions. Kalshi can pursue cases in circuits with different judicial philosophies or different statutory language in their home states. The company might find more receptive audiences in circuits that have shown skepticism toward aggressive state gambling enforcement.

Kalshi now faces choices. The company can pursue an en banc rehearing before the full Ninth Circuit, though Roth did not suggest this path shows strong probability of success given the unanimous three-judge panel. More realistically, Kalshi can use the decision to refine arguments for appeals to other courts or to negotiate with regulators by highlighting the limits of the Ninth Circuit's reasoning. The panel's narrow statutory focus provides ammunition for arguing that legislative change or federal regulation could carve out prediction markets.

Roth's analysis underscores a counterintuitive reality in appellate litigation. Losing decisions often contain useful language for future fights. The Ninth Circuit did not call prediction markets inherently illegal or fraudulent. The court simply concluded that existing state sports betting laws reach them. That framing leaves room for statutory amendment, regulatory reinterpretation, or different arguments in different jurisdictions.

Kalshi's path forward narrows considerably after this ruling, but it does not close entirely.