A US appeals court has ruled that Kalshi prediction markets can face state gambling regulation, dealing a setback to the company’s effort to keep its sports event contracts under federal oversight.
The Sixth US Circuit Court of Appeals ruled Friday that Ohio and Tennessee can enforce their gambling laws against Kalshi’s sports-related event contracts. The court said Kalshi had not shown that those contracts qualify as “swaps” subject exclusively to the Commodity Futures Trading Commission (CFTC).
Court Rejects Kalshi’s Federal Preemption Argument
The case centered on whether federal commodities law prevents states from regulating Kalshi’s sports contracts.
A unanimous three-judge panel rejected Kalshi’s argument that its contracts fall within the CFTC’s exclusive jurisdiction over swaps. The court also said the Commodity Exchange Act does not preempt Ohio or Tennessee gambling laws.
Judge Julia Smith Gibbons wrote that Kalshi had not demonstrated that its sports contracts meet the statutory definition of a swap.
The court also offered an alternative conclusion. Even if the contracts qualified as swaps, the judges said the federal law would not necessarily prevent states from enforcing gambling regulations that apply to the sports contracts.
Kalshi Warns About State-by-State Rules
Kalshi disagreed with the ruling and argued that different state requirements could create problems for prediction markets operating nationwide.
Company spokesperson Dani Lever said the decision demonstrated why a state-by-state regulatory system would be difficult for the industry to manage.
Kalshi has maintained that Congress created a federal framework for these markets and that a single regulator should oversee them across the country.
The company can continue its legal challenge, potentially keeping the issue alive beyond Friday’s ruling.
What Are Prediction Markets?
Prediction markets allow participants to buy and sell contracts linked to the outcome of future events.
The platforms initially focused on areas such as economics, weather and politics. However, sports contracts have become a major part of the debate over how these markets should operate.
The legal dispute has intensified because state regulators argue that sports event contracts resemble gambling products. Kalshi, meanwhile, has argued that its contracts are financial derivatives subject to federal regulation.
That distinction has become central to the court battles.
Appeals Courts Split Over Kalshi
Friday’s decision adds to a growing disagreement among US federal appeals courts.
The Ninth Circuit recently ruled that Nevada could regulate Kalshi’s sports event contracts under state gambling laws. Meanwhile, the Third Circuit reached a different conclusion in April in a case involving New Jersey, ruling that the Commodity Exchange Act preempted the state’s attempt to regulate the contracts. New Jersey has asked the US Supreme Court to review that decision.
As a result, federal courts have now reached conflicting conclusions about the balance between federal derivatives regulation and state gambling laws.
That split could eventually bring the issue before the Supreme Court. However, the Supreme Court has not yet agreed to hear the New Jersey case.
Court Questions Whether Sports Contracts Are Swaps
The Sixth Circuit also examined the purpose behind the federal commodities law.
The court’s opinion distinguished traditional financial swaps from contracts based on sports outcomes. It noted that financial swaps generally relate to financial, economic or commercial risks that participants may want to hedge or use for pricing information.
The judges questioned whether predicting sports outcomes serves the same purpose.
The opinion specifically discussed contracts tied to events such as the number of corner kicks in a soccer match or the success of a multi-leg sports wager. The court concluded that Kalshi had not shown the required connection to an underlying financial consequence.
Ohio and Tennessee Cases Move Forward
The ruling changes the status of two separate legal challenges.
In Ohio, the Sixth Circuit upheld a lower court’s refusal to grant Kalshi a preliminary injunction. In Tennessee, it overturned a federal judge’s preliminary injunction that had temporarily protected Kalshi from enforcement of the state’s gambling laws. The cases will now continue in the lower courts.
Tennessee Attorney General Jonathan Skrmetti welcomed the ruling and described it as a win for the state.
Ohio officials did not immediately respond to requests for comment in the initial reports.
For Kalshi prediction markets, the ruling adds another major legal obstacle as regulators and courts continue to debate who should control sports event contracts: federal authorities, state gambling regulators or both.
