DraftKings surged nearly 10% on Thursday after a federal appeals court ruled that sports-related event contracts are not “swaps,” removing a potential regulatory hurdle that has weighed on the sportsbook industry for months. The Ninth Circuit Court of Appeals rejected arguments from prediction market platforms Kalshi and Crypto.com, concluding that sports bets fall under state gambling jurisdiction rather than exclusive federal oversight.
The ruling directly contradicts a Third Circuit decision from April 2026, which held that sports-related event contracts are swaps regulated by the Commodity Futures Trading Commission. This conflict between two federal appeals courts creates what legal experts call a “circuit split,” a situation that typically prompts the Supreme Court to intervene and settle the question definitively.
Flutter Entertainment, the parent company of FanDuel, also rose more than 6% in afternoon trading. Both companies have been developing prediction market platforms to compete in a rapidly growing market, but the legal uncertainty has weighed on their stock prices throughout 2026. DraftKings’ Predictions platform generated $11 billion in volume between April and July, according to CEO Jason Robins, and the company expects to generate about $50 million in market-making revenue from prediction markets this year.
The core dispute centers on whether sports-related event contracts are derivatives regulated exclusively by the CFTC or gambling products subject to state law. The CFTC argues that any contract structured as a swap—regardless of its underlying subject—falls under its jurisdiction. States including Nevada, Massachusetts, and Washington have pushed back, contending that calling a bet an “event contract” does not change its fundamental nature as gambling.
The Nevada Attorney General’s office welcomed the Ninth Circuit ruling as a victory for state authority. “Kalshi sought to sidestep Nevada’s gaming laws by claiming its sports wagering products were federally regulated financial instruments beyond the reach of state regulators,” said Alcinia Whiters, a deputy communications director for the office. “The Ninth Circuit rejected that argument and made clear what we have maintained from the beginning: sports betting does not become something else simply because a company calls it an ‘event contract.'”
The CFTC disputed the decision in a statement to CNBC, arguing that the court misapplied federal law. “A derivative contract structured as a swap is a swap regardless of the underlying subject matter,” the agency said. “The Ninth Circuit erred today when it invented a new and atextual exception to the CEA,” referring to the Commodity Exchange Act.
Columbia Law School professor Joshua Mitts told CNBC that a Supreme Court showdown is now likely. “This is a classic circuit split,” Mitts said. “Ultimately, this is the kind of legal controversy or legal difference of opinion which will make its way to the Supreme Court.” Legal experts have previously estimated that a cert petition could come by late 2026 or early 2027, with a Supreme Court decision possible during the 2027-2028 term.
The prediction markets industry is expected to grow significantly in the coming years. One analyst noted that prediction markets face lawsuits from red and blue states seeking to enforce their gambling laws, adding to the regulatory uncertainty. Meanwhile, DraftKings and FanDuel diverge on prediction markets strategy after weak earnings, with both platforms competing to capture market share even as they navigate conflicting court rulings.
Sources
- CNBC — Ninth Circuit ruling details, DraftKings and Flutter stock reaction, CFTC statement, and expert commentary from Joshua Mitts
- Investing.com — DraftKings stock surge figure (7.5% in afternoon trading)
- Yahoo Finance / StockTwits — DraftKings nearly 10% surge and Flutter 8% gain confirmation
- Fortune — Prediction markets industry size and Supreme Court timeline expectations
- Nevada Attorney General’s office statement — Regulatory perspective on the ruling
