Eight years ago, PASPA fell and 39 states built a $13-plus billion legal sports betting industry from the rubble. Now a federal appeals court ruling — and a circuit split that appears to be forming in real time — could bypass that entire structure, not through new legislation but through a 1974 commodities law that predates the concept of legal sports betting by decades.
On April 6, 2026, the U.S. Court of Appeals for the Third Circuit ruled 2-1 in KalshiEX LLC v. Flaherty that Kalshi’s sports event contracts qualify as “swaps” under the Commodity Exchange Act — which means they fall under exclusive federal CFTC jurisdiction, not New Jersey state gambling law. It was a preliminary injunction ruling, not a final merits decision, so the case heads back to the district court. But the principle it established has the whole industry watching.
The quick version for anyone who’s placed a moneyline bet and never thought twice about it: Kalshi isn’t technically a sportsbook. When you bet on DraftKings, you’re betting against the house — DraftKings sets the odds, embeds a vig into every line, and profits from your losses. When you trade on Kalshi, you’re buying a binary contract (will the Celtics win tonight?) priced between $0.01 and $0.99 based on implied probability. If you’re right at settlement, the contract pays $1. If you’re wrong, it pays $0. Kalshi takes a small transaction fee and has no stake in who wins. Legally, it calls this a “swap.” Two circuit court judges just said that’s probably correct.
The dissenting judge, Circuit Judge Jane R. Roth, was not persuaded. “Basic abductive reasoning tells us that if it looks like gambling, talks like gambling, and calls itself gambling, it’s gambling,” she wrote. She’s not wrong that the products are functionally similar — but “functionally similar” isn’t how federal preemption works, which is precisely why this is heading toward a circuit split.
Ten days after the Third Circuit ruling, on April 16, the Ninth Circuit heard oral arguments in a parallel case pitting Kalshi, Robinhood, and Crypto.com against Nevada. The district court below had ruled against Kalshi. The Ninth Circuit judges — all three Trump appointees — reportedly signaled favor toward Nevada’s position at oral argument. A ruling is expected sometime between June and August 2026. If the Ninth Circuit affirms the district court, you have a genuine split between federal circuits on the same federal preemption question. At that point, gaming lawyers say Supreme Court review becomes likely, though no certiorari petition has been filed and realistically couldn’t arrive until early 2027 at the earliest.
There’s also a Fourth Circuit argument scheduled for May 7 in a Maryland case, plus pending Sixth Circuit appeals from Tennessee and Ohio — in opposite directions. Kalshi’s legal strategy, as gaming attorney Daniel Wallach put it to Fortune, is transparent: “If you are the prediction markets, the goal is to create litigation in as many circuits as possible to expand the runway.”
The structural stakes here are different from anything that came up when PASPA fell. That Supreme Court decision gave states the choice to legalize sports betting. Kalshi’s preemption argument, if it ultimately prevails, would remove that choice entirely. A state that wants to ban or regulate prediction markets would have no mechanism to do so — CFTC jurisdiction would supersede them. Traditional sportsbooks pay state gaming taxes ranging from roughly 7 to 51 percent of gross gaming revenue depending on jurisdiction. Kalshi, as a federally-regulated designated contract market, pays none of those taxes. That’s not a minor footnote; it’s a structural competitive advantage that the licensed sportsbook industry is treating as an existential threat.
Which explains why DraftKings and FanDuel didn’t just fight Kalshi — they built their own prediction market apps. DraftKings Predictions launched December 19, 2025 in 38 states. FanDuel Predicts followed three days later. MoffettNathanson downgraded DraftKings stock in April over the prediction market threat. The two biggest companies in licensed sports betting are simultaneously lobbying against Kalshi and hedging by copying it. That’s the move of an industry that doesn’t actually know who’s going to win.
Meanwhile, Kalshi’s CEO Tarek Mansour posted his reaction after the Third Circuit ruling: the Third Circuit had handed his company what gaming lawyers are calling a loaded weapon. DraftKings, FanDuel, Fanatics, and Bet365 have poured $48 million into a political super PAC. Senators from both parties have co-sponsored the “Prediction Markets Are Gambling Act,” which would reclassify sports contracts as gambling and strip CFTC jurisdiction. Thirty-eight state attorneys general filed amicus briefs backing the states. The DOJ and CFTC jointly sued three states on April 2, asserting federal preemption in what lawyers described as an unprecedented offensive.
None of this gets resolved before football season. The Ninth Circuit ruling arrives sometime this summer, and then the clock starts on whether this goes to One First Street. What’s already resolved is that the PASPA-era regulatory framework — built on the assumption that states control sports betting — is facing its first serious legal challenge from inside the federal government itself.
Gaming analyst Dustin Gouker summed up the structural shift:
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