SKN | Kalshi Loses Appeals Court Battle as State Regulation Gains Ground

Key Points

• The 6th US Circuit Court of Appeals ruled that Ohio and Tennessee can enforce their gambling laws against Kalshi’s sports-event contracts.
• The court found that Kalshi had not shown its sports contracts qualify as “swaps” subject to the Commodity Futures Trading Commission’s exclusive jurisdiction.
• The decision adds to conflicting federal appellate rulings and could increase the likelihood of a future US Supreme Court review.

Sixth Circuit Rules Against Kalshi

Kalshi suffered a major legal setback Friday after the 6th US Circuit Court of Appeals ruled that Ohio and Tennessee can regulate the prediction-market operator’s sports-event contracts under state gambling laws.

A unanimous three-judge panel rejected Kalshi’s argument that its sports contracts fall within the Commodity Exchange Act’s federal framework and are therefore protected from state regulation. The court held that Kalshi had not established that the contracts meet the statutory definition of “swaps” subject to the CFTC’s exclusive jurisdiction.

The ruling affirmed an Ohio district court decision denying Kalshi’s request for a preliminary injunction while vacating a Tennessee ruling that had temporarily protected the company from state enforcement. The Tennessee case was sent back for further proceedings.

Court Rejects Federal Preemption Argument

At the center of the dispute is whether Kalshi’s sports-event contracts are financial derivatives covered exclusively by federal commodities law or products that states can regulate as gambling.

The 6th Circuit concluded that the sports events underlying Kalshi’s contracts generally do not have the type of intrinsic financial, economic or commercial consequences contemplated by the Commodity Exchange Act’s definition of a swap. The court distinguished sports outcomes from events such as changes in interest rates or financial asset prices, which have a more direct connection to financial risk management and price discovery.

The judges also ruled that, even if the contracts were treated as swaps for purposes of the analysis, the federal law would not expressly or impliedly preempt Ohio and Tennessee gambling laws.

That reasoning removes a central part of Kalshi’s argument that a federally regulated exchange should operate under a single national regulatory framework rather than comply with individual state gambling rules.

Appeals Courts Are Divided

The decision adds to an increasingly important split among US federal appeals courts.

The 9th Circuit reached a similar conclusion in August, finding that Kalshi had not demonstrated that federal law preempts state regulation of its sports-event contracts. The 3rd Circuit, however, reached a different procedural result in April, allowing Kalshi to continue operating in New Jersey while its legal challenge proceeds.

The differing rulings have increased uncertainty over the division of authority between federal regulators and state gambling authorities.

For Kalshi, the issue extends beyond individual state enforcement actions. A resolution could help determine whether prediction markets offering contracts tied to sports and other events fall primarily within federal commodities regulation or remain subject to state-level gambling laws.

Supreme Court Review Could Follow

The growing circuit disagreement creates a potential path toward Supreme Court consideration, although a Supreme Court case is not guaranteed.

State lawmakers have also urged the Supreme Court to address the dispute through an amicus brief, seeking clarification over the respective authority of states and federal agencies in regulating prediction-market companies.

The 6th Circuit ruling does not itself determine the ultimate regulatory status of every Kalshi product. Its decision specifically addresses the company’s sports-event contracts and the legal arguments surrounding Ohio and Tennessee enforcement.

Outlook

Kalshi’s latest court defeat strengthens the position of state regulators seeking to apply gambling laws to sports-event contracts, while conflicting appellate decisions leave the broader jurisdictional question unresolved. The next stages of the litigation, along with any effort to seek Supreme Court review, could play a significant role in determining how prediction markets operate across the United States.