A federal appeals court has ruled that Kalshi’s sports-related event contracts are not federally regulated swaps, handing the prediction market operator its second major appellate defeat this year and pushing an already tangled legal fight closer to the U.S. Supreme Court. A three-judge panel of the Sixth Circuit Court of Appeals decided on September 25 that the contracts fall under state gaming law rather than the exclusive jurisdiction of the Commodity Futures Trading Commission, resolving two separate Kalshi lawsuits against regulators in Ohio and Tennessee.
The decision matters because it widens a split among federal circuits over a question that will determine how millions of Americans can legally bet on sports outcomes through platforms marketed as financial exchanges rather than sportsbooks. If state gambling law applies, Kalshi and similar platforms could be forced to obtain gaming licenses, restrict access to users under 21, and pay state taxes in every jurisdiction where they operate — a dramatically different business model than operating under a single federal derivatives license.
How the Dispute Reached This Point
Kalshi built its business on the premise that its contracts are commodity derivatives, or swaps, regulated exclusively by the CFTC under federal law that generally preempts state gambling statutes. That framing let the company offer contracts tied to sports outcomes nationwide without seeking a patchwork of state gambling licenses. The approach worked for years, but it drew intense scrutiny after sports-related prediction contracts multiplied in popularity following the 2024 election.
State regulators pushed back hard. Their objections centered on two concerns: lost tax revenue that would otherwise flow to licensed, state-regulated sportsbooks, and a lower minimum age of 18 for prediction market contracts compared with the 21-and-over standard many states impose on gambling operators. Ohio and Tennessee were among the states that moved to treat Kalshi’s sports contracts as gambling products subject to state oversight rather than federal commodities law.
Kalshi sued in both states seeking injunctions to block enforcement. The results diverged even at the trial court level: an Ohio federal court denied Kalshi’s request, while a Tennessee court granted it. That inconsistency set the stage for the Sixth Circuit panel, which now covers both states, to issue a unified ruling — one that went against Kalshi in both instances.
A Deepening Circuit Split
The Sixth Circuit’s ruling is not an isolated event. It is the third federal appellate court to weigh in on whether prediction market sports contracts qualify as swaps, and the circuits have not agreed. The Third Circuit previously found that the CFTC does have jurisdiction over such contracts, effectively backing Kalshi’s federal-law theory. The Eighth Circuit reached the opposite conclusion, ruling the contracts are not swaps at all. The Sixth Circuit’s decision now aligns with the Eighth Circuit’s view, leaving the Third Circuit as the outlier among the three.
That split carries real consequences beyond legal theory. Kalshi’s Third Circuit case has already been appealed to the Supreme Court, and a second circuit ruling against the company’s position makes it substantially more likely the justices will agree to hear the matter. Circuit splits — where different regions of the country apply conflicting rules to the same national business — are precisely the kind of disputes the Supreme Court is designed to resolve, since companies like Kalshi cannot operate under one legal theory in Pennsylvania and a different one in Ohio and Tennessee indefinitely.
The stakes extend to the broader prediction market industry, which has faced mounting regulatory pressure on multiple fronts recently. New York has separately sued Polymarket, arguing it operates as an illegal gambling business, and the CFTC has issued its own warnings about other categories of prediction contracts, including those tied to speech and public statements. Together, these actions suggest state and federal regulators are converging on prediction markets from several directions at once, even as the CFTC itself has been working to broaden guidance on other tokenized and digital assets under its purview.
What to Watch Next
The most consequential question now is whether the Supreme Court agrees to take up the Third Circuit case, and if so, how it frames the issue. A grant of certiorari would likely pause or reshape ongoing litigation in Ohio, Tennessee, and any other states considering similar action against Kalshi or its competitors.
- Whether Kalshi seeks rehearing or appeals the Sixth Circuit ruling directly
- Any Supreme Court action on the pending Third Circuit appeal
- Whether additional states move to enforce gambling licensing requirements against Kalshi in the meantime
- How the parallel litigation against Polymarket in New York develops alongside the Kalshi cases
- Whether Congress moves to clarify federal versus state authority over these contracts, given the CFTC’s broader struggle to keep pace with digital and event-based markets amid legislative inaction
For now, Kalshi faces a state-by-state patchwork in at least two more jurisdictions, with the prospect of national clarity resting on whether the nation’s highest court decides this is a fight worth settling once and for all.
Source: CoinDesk
This content is for informational purposes only and does not constitute financial or investment advice.
Create a free account to comment and earn rewards.
Create account Log in