Appeals Court Affirms States’ Power to Regulate Kalshi’s Sports Prediction Contracts

Highlights

The 6th U.S. Circuit Court of Appeals ruled that Ohio and Tennessee may enforce their gambling laws against Kalshi’s sports-related event contracts, rejecting Kalshi’s claim that those contracts are federally regulated swaps. The court found Kalshi did not demonstrate its sports-event contracts fit the statutory definition of a "swap" under the Commodity Exchange Act, and also held the CEA does not preempt state gambling laws. This decision reinforces state authority to regulate certain prediction-market offerings. The ruling follows similar circuit court setbacks for the industry and adds momentum to an evolving national legal dispute.

Sentiment Analysis

• The overall tone of the article is measured and largely neutral, reporting a judicial decision and its implications without overt editorializing. The piece emphasizes legal findings that favor state regulators and highlights reactions from state officials, reflecting a cautiously critical posture toward Kalshi’s regulatory argument. The language stresses legal holdings and procedural posture, indicating a factual, information-focused approach rather than advocacy.

Article Text

The U.S. Court of Appeals for the Sixth Circuit issued a unanimous opinion holding that Ohio and Tennessee may apply their state gambling laws to sports-related contracts offered on Kalshi’s prediction market platform. The three-judge panel concluded that Kalshi had not established that those contracts fall within the statutory definition of a "swap," which would place them under the Commodity Futures Trading Commission’s exclusive regulatory authority. As a result, the court allowed the states to treat certain offerings as subject to state-level gambling regulation.

Kalshi and similar prediction-market operators contend that event contracts are swaps — a category of financial derivative overseen by the CFTC under the Commodity Exchange Act. If classified as swaps, these contracts would be regulated at the federal level and, the platforms argue, would be insulated from state gambling laws. States, by contrast, maintain that sports-related offerings function as bets and therefore fall squarely within state gambling or sports-wagering statutes.

The Sixth Circuit’s opinion rejected Kalshi’s threshold argument that the contracts are swaps. It also addressed the CFTC’s broader preemption claim, finding that, even if the contracts qualified as swaps, the Commodity Exchange Act does not expressly or impliedly preempt Ohio’s or Tennessee’s gambling regulations. That conclusion means states retain the authority to regulate or prohibit certain prediction-market activities that resemble sports betting under local law.

This decision reverses a Tennessee district court ruling that had previously favored Kalshi and affirms an Ohio district court decision that sided with state regulators. It follows a recent appeals-court decision in the Ninth Circuit that reached a similar outcome, determining Nevada could regulate sports-related event contracts as sports bets. Conversely, the Third Circuit has taken a different view in another dispute, holding that the CFTC has exclusive jurisdiction over swaps broadly — a ruling that was appealed to the Supreme Court earlier in the month.

The patchwork of appellate outcomes has produced a circuit split and intensified uncertainty about how prediction markets that offer sports-event contracts will be governed. Parties on both sides have pursued litigation across multiple jurisdictions: states have sued platforms to enforce local gambling laws, platforms have sued states seeking injunctions, and the CFTC has pursued litigation in defense of what it contends is its exclusive regulatory authority under federal law.

State officials lauded the Sixth Circuit ruling. Tennessee’s attorney general characterized Kalshi’s strategy as an attempt to sidestep state safeguards and taxation associated with sports wagering and said the decision protects Tennesseans from potential harms tied to unregulated betting. Kalshi and the CFTC did not immediately provide public comments following the opinion.

The decision represents another significant legal setback for prediction-market operators that offer sports-related contracts and underscores the complex interplay between state gambling regimes and federal commodities regulation. The ruling strengthens state regulators’ ability to apply local law to platforms whose offerings resemble sports bets, even as the broader legal question — and possible Supreme Court review — remains unresolved.

With differing rulings across circuit courts, the path forward may depend on further appeals and potential Supreme Court intervention to resolve whether certain event contracts are uniformly subject to federal swap regulation or whether states may continue to treat them under gambling laws. Until such a definitive ruling, platforms, states, and federal regulators will likely continue litigation and regulatory actions in multiple venues.

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