Kalshi and Polymarket failed to block state-level gambling enforcement actions in Nevada and Washington after the Ninth Circuit Court of Appeals ruled that federal derivatives oversight does not provide immunity from state gaming regulations. The decision establishes that platforms operating under CFTC authority cannot use federal preemption as a legal defense against state-level enforcement, a ruling that reshapes the regulatory calculus for prediction market operators across multiple jurisdictions.
Federal Preemption Argument Collapses
Prediction market platforms have increasingly relied on federal preemption arguments to insulate themselves from state gambling enforcement. The theory: if the CFTC regulates derivatives at the federal level, state gaming authorities lack jurisdiction. The Ninth Circuit rejected this framework entirely. The court determined that federal derivatives oversight does not preempt or supersede state gaming laws. This distinction matters. Federal regulation and state prohibition can coexist in the same legal space. Nevada and Washington state authorities proceeded with enforcement cases against both platforms despite their federal registration status as derivatives venues.
State Enforcement Cases Remain Active
The Ninth Circuit ruling clears the path for ongoing state-level enforcement actions in both Nevada and Washington. These cases now proceed without the legal shield that Kalshi and Polymarket had sought. The platforms’ attempt to halt enforcement through federal court intervention has failed. No specific details on the nature of the state gambling charges have been disclosed, nor has the timeline for resolution of the underlying cases been established. Market reaction to the ruling has not been reported.
Multi-Jurisdictional Risk for Prediction Markets
The decision signals a fragmented regulatory future for prediction markets in the United States. Federal CFTC oversight alone does not guarantee operational freedom across state lines. Any state with active gaming enforcement authorities can now pursue prediction market operators independently. This expands compliance costs and legal exposure for platforms operating nationally. Kalshi and Polymarket face a new operational reality: federal derivatives status provides no immunity from 50 separate state gambling regimes. Other prediction market entrants must now factor state-by-state enforcement risk into expansion plans.
Next Phase: State-Level Outcomes
The Ninth Circuit’s ruling does not determine the outcome of the Nevada and Washington cases themselves. It only removes federal preemption as a viable defense. Both platforms now face adjudication on the merits of state gaming law violations. The resolution of these enforcement actions will likely establish precedent for how other states approach prediction market regulation. Whether Kalshi and Polymarket can operate legally within state frameworks or face operational restrictions remains unresolved.
