Ninth Circuit Rules Against Kalshi; DraftKings and Flutter Stocks Spike

Shareholders of two of the best sports betting apps finally saw some relief on Friday with a sharp rally on the heels of a decision from the U.S. Court of Appeals for the Ninth Circuit. 

Flutter Entertainment - FanDuel's parent company - and DraftKings both had single-digit boosts (upwards of 7%) following the news that the court handed a unanimous 3-0 ruling against Kalshi, determining that its sports event contracts were functionally gambling wagers. 

It's just one ruling in what is shaping up to be a broader regulatory battle, but it offered a glimmer of hope ahead of the busy autumn season. 

The Ninth Circuit case focused on whether the CFTC-regulated Kalshi should bypass individual state gaming laws to offer sports-based contracts. Kalshi unsuccessfully argued that the contracts qualified as financial derivatives (swaps) under federal law. 

Writing for the panel, Judge Ryan Nelson dismissed the claim: "The substance of the sports event contracts offered on Kalshi's DCM is sports gambling, regardless of whether Kalshi calls them swaps," adding, "The CFTC is not a national gambling regulator."

Different courts, different rulings

The Ninth Circuit, however, does not settle nationwide disputes, and this ruling will almost certainly send the debate to the Supreme Court. 

Previous Third Circuit litigation produced a different outcome for prediction market apps, where the court ruled that CFTC-regulated markets fall under federal jurisdiction.

 With different rulings in different circuits, uncertainty across state lines and geoblocking might be in the future. Despite the stock surge, the ruling actually cuts both ways: Flutter and DraftKings have each launched prediction market apps, FanDuel Predicts and DraftKings Predictions. 

DraftKings Predictions is launching a major ad campaign ahead of the NFL season.  The campaign launched on Aug. 24 and highlighted the prediction market app in states where sports betting remains illegal. By using event-contract frameworks, it can establish its brand in states like California, Texas, Florida, and Georgia. It will ultimately be available in 18 states where the sportsbook app does not operate.