A Ninth Circuit appeals court ruling that sports bets are not swaps removes a potential regulatory hurdle for DraftKings and Flutter Entertainment.

  • The ruling allows Nevada to treat sports-prediction markets as unlicensed sportsbooks and halt their operations.
  • The Ninth Circuit rejected appeals from Kalshi and Crypto.com, as well as Robinhood’s request for injunctive relief.
  • Stocktwits sentiment for DKNG shifted to ‘neutral’ from ‘bearish,’ while FLUT remained ‘bearish.’

Shares of online sportsbooks DraftKings (DKNG) and Flutter Entertainment (FLUT), the parent company of FanDuel, moved higher on Friday after the U.S. Court of Appeals for the Ninth Circuit ruled that sports bets are not swaps.

The decision backs Nevada regulators in their dispute with prediction-market platforms and allows the state to treat sports-prediction markets as unlicensed sportsbooks.

DKNG stock jumped nearly 10% following the ruling, while FLUT shares gained around 8%.

Ninth Circuit Backs Nevada Regulators

The Ninth Circuit Court of Appeals rejected requests from prediction-market platforms for injunctive relief against the Nevada Gaming Control Board, finding that sports-related event contracts are not derivatives regulated by the federal government.

The court rejected appeals from Kalshi and Crypto.com seeking to stop Nevada from halting their operations, which the state considers gambling offerings outside the gaming control board’s framework. 

Sports Betting Or Derivatives? Regulators Remain Divided

The dispute centers on sports-related event contracts offered by the platforms. Forty-four states say the contracts are essentially sports betting, while the platforms and their federal regulator, the Commodity Futures Trading Commission (CFTC), maintain that all event contracts are swaps regardless of the subject. Swaps are derivatives under the CFTC’s jurisdiction, and the agency states that it has exclusive authority to regulate event contracts.

Judge Says Kalshi’s Sports Contracts Are Sports Bets

“For Kalshi to deny that its sports event contracts are sports bets under a reasonable person’s understanding is disingenuous. That sports event contracts are, in reality, sports bets is not just an ‘I know it when I see it.’ Rather, everyone, including Kalshi, knows it when they see it,” the opinion by Judge Ryan D. Nelson said.

Ruling Creates Circuit Split

The CFTC has sued nine states in an effort to defend what it considers its exclusive authority to set rules for prediction markets. The Ninth Circuit rejected that argument, stating that “the sports event contracts were not ‘swaps’ because they were sports bets.”

The decision could push the dispute toward the Supreme Court. The Ninth Circuit’s ruling conflicts with an early April decision from the Third Circuit Court of Appeals, which found that only the CFTC has jurisdiction over sports-related event contracts.

DKNG, FLUT Stocks: Stocktwits Retail Sentiment

On Stocktwits, retail sentiment for DKNG shifted to ‘neutral’ from ‘bearish’ over the past 24 hours, while message volume remained ‘low.’ For FLUT, retail sentiment was ‘bearish,’ unchanged over the same period, with message volume also ‘low.’

DKNG stock has lost 27% year-to-date, while FLUT shares have declined 54% over the same period.

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