DraftKings and Flutter Rally After Appeals Court Subjects Prediction Markets to State Gaming Laws

Shares of online gaming operators DraftKings Inc. (NASDAQ: DKNG) and Flutter Entertainment plc (NYSE: FLUT) experienced sharp surges on Aug. 28 after the Ninth Circuit Court of Appeals ruled that sports-related event contracts are governed by state gambling laws rather than federal commodities regulations. In a major legal setback for prediction market exchanges, the court ruled that these contracts do not constitute "swaps" under federal commodities law, giving the Nevada Gaming Control Board legal authority to apply state gaming regulations to them. As part of the ruling, the appellate panel denied emergency requests for injunctive relief submitted by prediction platforms Kalshi, Crypto.com, and Robinhood, which had sought to prevent Nevada officials from shutting down their sports contract offerings in the state, as reported by Yahoo Finance.

Investors responded positively to the court's decision, sending DraftKings stock up by as much as 10% during trading, while shares of Flutter Entertainment rose up to 8%. At the heart of the litigation was a crucial jurisdictional question regarding whether prediction market event contracts linked to athletic outcomes should be categorized as financial derivatives under federal oversight or as sports wagers under state jurisdiction. The Ninth Circuit's core determination was clear: contracts tied to sporting events represent sports bets rather than financial swaps subject to federal commodity statutes.

The legal dispute highlights a long-running battle between federal financial regulators, financial tech platforms, and state governments. Operators of prediction markets, alongside their primary federal regulator, the Commodity Futures Trading Commission (CFTC), have argued that event contracts fall under exclusive federal jurisdiction as derivative swaps. Under this interpretation, individual states would be barred from prohibiting or regulating the products. Conversely, a coalition of 44 states aggressively challenged this position, contending that prediction exchanges were simply packaging conventional sports gambling inside financial terms to circumvent state-level regulatory systems, licensing hurdles, and consumer protection rules that govern established operators such as DraftKings.

Over the past year, both DraftKings and Flutter Entertainment have endured significant stock valuation headwinds, with equity analysts pointing to the rapid growth of prediction platforms as a key source of competitive pressure. Exchanges like Kalshi were able to offer sports outcome wagers in states where traditional sports betting remains illegal or subject to strict operational limits by classifying their contracts as federally authorized financial products rather than state-regulated gaming. If other courts adopt the Ninth Circuit's reasoning, prediction markets could lose much of their structural regulatory advantage by becoming subject to the same state gaming licenses and statutory requirements that apply to traditional online bookmakers.

Institutional sentiment surrounding major sports betting equities had soured noticeably prior to the judicial decision, reflecting widespread investor concerns over the competitive threat posed by unregulated prediction exchanges. According to quarterly filings, hedge fund ownership in DraftKings decreased from 61 funds in the first quarter to 54 funds in the second quarter. Flutter Entertainment suffered an even larger reduction in institutional support, with its hedge fund owner count dropping from 57 to 37 over the same three-month period. This institutional retreat occurred despite the underlying legal dynamics that ultimately culminated in the Ninth Circuit's favorable decision for legacy sportsbooks.

By ruling that sports outcome contracts are subject to state gaming oversight, the appeals court removed a major legal vulnerability for traditional gambling companies. If prediction markets are ultimately required to navigate state-by-state licensing frameworks to offer sports event contracts, the substantial financial and administrative barriers to entry that have historically protected established sportsbooks will apply equally to newer market entrants. Furthermore, because 44 states supported Nevada's regulatory stance in court, the ruling could prompt state gaming authorities across the country to launch similar enforcement actions to curtail unlicensed sports prediction trading in their respective jurisdictions.

Despite the legal victory for traditional operators, legal experts emphasize that the Ninth Circuit's decision represents a single federal appeals court judgment rather than a final, nationwide resolution. Prediction market operators possess substantial legal resources and strong financial incentives to continue contesting the matter through the federal court system. Platforms are already moving forward with legal challenges, including a petition for rehearing filed by Kalshi that is set for Sept. 9, with the potential for eventual review by the U.S. Supreme Court if appellate remedies are exhausted.

Market analysts caution that dramatic single-day equity rallies following legal decisions can sometimes prove overstated if subsequent judicial proceedings or narrower administrative implementations reduce the practical effect of the ruling. While the Ninth Circuit's opinion provides immediate relief to established sports betting companies facing lower-cost competition from unregulated prediction exchanges, institutional investors will likely look for sustained long-term buying activity—rather than a single trading session surge—to confirm that the decision has permanently improved the competitive thesis for DraftKings and Flutter.