Three judges appointed by President Donald Trump have delivered a significant legal setback to prediction markets such as Kalshi and Polymarket, rejecting the very industry the Trump administration has been actively defending as federally regulated financial exchanges rather than gambling.

According to CNN, the Ninth Circuit Court of Appeals ruled unanimously on Friday that Nevada regulators may treat sports-related prediction contracts as gambling subject to state oversight. The decision rejected Kalshi and Crypto.com's bid to block the state from shutting down their operations.

The 3-0 panel found that sports event contracts do not qualify as federally regulated derivatives — a conclusion that directly contradicts the position the platforms and the Commodity Futures Trading Commission (CFTC) have advanced during Trump's tenure. At the heart of the dispute is the reach of the Commodity Exchange Act, the federal statute governing derivatives markets: the platforms argue their event contracts are regulated instruments under exclusive CFTC jurisdiction, while states counter that gambling laws still apply to products that function like sports wagering.

Independent journalist Dustin Gouker, who covers the prediction market industry, called the decision a stinging first for Kalshi at the appellate level.

"It's the first ruling against Kalshi at the appellate level, and the opinion seemed to be pretty brutal for the company," Gouker said.

The ruling clashes with an April decision from the Third Circuit, which sided with prediction markets in a similar dispute against New Jersey and concluded that all such event contracts qualify as swaps under exclusive federal jurisdiction. That split between two federal appeals courts — one populated in part by Trump's own appointees ruling against the industry's federal-preemption argument — all but guarantees the fight will now head to the Supreme Court, where the justices frequently take up cases precisely to resolve conflicting rulings among the circuits. The outcome will shape whether the industry operates under a single national framework or a patchwork of state-by-state gambling rules.

For now, the decision stands as a notable rebuke to Trump, whose regulators have taken a hardline stance that prediction markets are not gambling and that states lack jurisdiction to regulate them as such. Trump's eldest son, Donald Trump Jr., serves as an adviser to Kalshi and Polymarket.

Nevada is among several states — including Michigan and Washington — that have already successfully moved to shut down some or all of Kalshi's operations within their borders. New York has also sued Kalshi directly, alleging it is running an illegal gambling operation. The CFTC, meanwhile, has fought back in court, arguing that allowing individual states to enforce gambling laws against federally regulated platforms risks destabilizing the entire market nationwide.

Separately, Wisconsin officials recently issued an advisory telling voters they cannot legally place prediction market bets on elections they are voting in — a law Kalshi strongly opposes.

Shares of traditional sportsbooks DraftKings and Flutter Entertainment, the parent company of FanDuel, ticked up following the ruling. Representatives for Kalshi did not immediately respond to requests for comment.