The recent ruling by the US Court of Appeals for the Ninth Circuit took a significant step regarding the legal status of prediction markets, namely Kalshi and Polymarket. On May 22, the court denied requests for stays from both platforms, enabling state-level gambling enforcement actions in Nevada and Washington to move forward. This decision reinforces the state's authority in regulating gambling while both platforms argued they would face irreparable harm if the cases continued. Nevertheless, the court deemed their arguments regarding federal preemption unconvincing, necessitating further legal scrutiny.
#How Did the Legal Issues Start?
The legal complications for Kalshi began in February 2026 when Nevada initiated a civil enforcement action, asserting that the platform's contracts—especially those linked to sports outcomes—should be governed by state gaming regulations, not federal oversight from the CFTC. This action emerged following a critical federal ruling on November 25, 2025, which provided Nevada with the necessary authority to pursue action against Kalshi. Meanwhile, Polymarket's legal troubles in Nevada predated these developments, with the state filing its case against the platform in January 2026. Polymarket had previously suspended operations amid regulatory challenges in late 2025.
Additionally, Washington's Attorney General filed a lawsuit against Kalshi in late March 2026, targeting the platform's alleged violations of state anti-gambling laws. The regulatory landscape has become increasingly complex, with at least nine other states issuing cease-and-desist letters or lawsuits against both Kalshi and Polymarket, and Arizona taking the lead by pursuing criminal charges.
#What is the Preemption Argument?
Both Kalshi and Polymarket contend that their contracts are properly regulated via exchanges overseen by the CFTC, allowing them to argue for federal law as a preemptive force against state gambling statutes. However, state regulators argue that contracts tied to sports events closely resemble sports betting, traditionally governed at the state level. Therefore, the Ninth Circuit's decision to deny stays indicates that the court did not find the platforms' arguments regarding federal preemption credible enough to postpone enforcement actions.
#What Does This Mean for Investors?
As the situation unfolds, Kalshi and Polymarket must navigate ongoing state court proceedings while pursuing appeals. If state gambling regulators successfully assert jurisdiction over prediction markets, both platforms could face a plethora of compliance obligations across multiple states. For example, Nevada may require a gaming license, while Washington may prohibit specific contract types, and Arizona could impose criminal charges.
For traders utilizing Kalshi and Polymarket, potential disruptions in market access could arise in states where court rulings are unfavorable to these platforms. Moreover, the scrutiny around sports-related contracts could result in offerings being limited or withdrawn altogether. Understanding the implications of these developments is crucial for investors looking to engage with prediction markets amid a rapidly shifting regulatory environment.