Shares of DraftKings Inc. and Flutter Entertainment plc rose following an August 28 Ninth Circuit Court of Appeals decision that classified sports-related contracts offered by prediction-market platforms as gambling products subject to state regulation rather than federal commodities law. DraftKings gained up to 10% while Flutter increased up to 8% on the ruling.
The court determined that sports event contracts are sports bets rather than swaps under federal commodity law, a distinction that determines which regulator oversees the products. Prediction-market platforms and the Commodity Futures Trading Commission had argued these contracts fall under exclusive federal jurisdiction as derivatives, preventing states from regulating them. However, 44 states had opposed this position, contending the products constitute sports betting disguised in financial terminology and should face the same state-level gaming regulations applied to licensed sportsbooks.
The ruling addressed a competitive advantage held by prediction-market platforms like Kalshi, which had operated in states where traditional sports betting faced restrictions by positioning their offerings as federally authorized financial contracts. The decision potentially allows states to apply their own gaming laws and licensing requirements to sports-related event contracts, eliminating this structural advantage.
Both DraftKings and Flutter had experienced institutional investor headwinds prior to the ruling. DraftKings saw hedge fund ownership decline from 61 holders in the first quarter to 54 in the second quarter, while Flutter’s hedge fund holdings fell from 57 to 37 during the same period. The ruling narrows a significant competitive threat by potentially requiring prediction-market platforms to obtain state-by-state gambling licenses, leveling regulatory barriers that have long protected traditional sportsbooks.
However, the decision represents a single appeals court ruling rather than a final nationwide determination. Prediction-market platforms retain the ability to pursue further appeals or seek Supreme Court review. Observers noted that Kalshi filed a petition for rehearing on September 9, and the practical impact of the ruling may ultimately prove narrower than the initial market reaction suggested.
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