A federal appeals court has handed Kalshi its second defeat in as many months, ruling that the prediction market operator cannot use federal commodities law as a shield against state sports-gambling enforcement. A unanimous three-judge panel of the U.S. Court of Appeals for the Sixth Circuit found on Friday that Kalshi failed to prove its sports event contracts qualify as “swaps” under the Commodity Exchange Act — a determination that lets Ohio and Tennessee move forward with enforcing their own gambling statutes against the platform.
The decision matters well beyond two states. It deepens a growing split among federal circuits over whether Washington’s commodities framework preempts state authority over betting-like products dressed up as financial instruments, a question that now looks increasingly likely to land before the U.S. Supreme Court.
What the Court Decided
The Sixth Circuit panel upheld a lower court’s refusal to grant Kalshi a preliminary injunction in Ohio, where the Ohio Casino Control Commission has sought to apply its gambling rules to the platform. In the companion Tennessee case, the appeals court went further, vacating an injunction that a district court had previously granted in Kalshi’s favor and sending the matter back down for further proceedings — a setback that effectively reopens the door for the Tennessee Sports Wagering Council to act.
At the heart of the ruling is a technical but consequential reading of Dodd-Frank. The law defines a swap as a contract tied to an occurrence with a “financial, economic, or commercial consequence.” Kalshi has argued that sports outcomes carry exactly that kind of downstream economic ripple, which would place its contracts under exclusive federal jurisdiction and out of reach of state gambling regulators. The Sixth Circuit disagreed, concluding that any economic effects of a game’s outcome are too indirect to meet the statutory bar. Notably, the court’s reasoning was bolstered by Kalshi’s own prior concessions in separate litigation, where the company had acknowledged that its sports contracts carry “no inherent economic significance” — a statement now working against it in a different courtroom.
With this outcome, Kalshi’s record in circuit courts stands at one win out of three rulings since it began listing sports-linked event contracts in January 2025.
A Widening Circuit Split
The Sixth Circuit’s ruling does not exist in isolation. In August, the Ninth Circuit ruled against Kalshi in a Nevada dispute on similar grounds. Just months earlier, in April, the Third Circuit reached the opposite conclusion in a New Jersey case, ruling 2-1 in Kalshi’s favor. That split is already being tested at the highest level: on September 2, New Jersey’s attorney general asked the Supreme Court to review the Third Circuit’s decision. A fourth front is pending before the Fourth Circuit in a Maryland case that has yet to be resolved.
The Commodity Futures Trading Commission has not stayed neutral. The agency filed an amicus brief in May backing Kalshi’s position in the Ohio case, consistent with CFTC Chair Michael Selig’s public stance that the agency holds exclusive jurisdiction over prediction markets — a claim state regulators are directly contesting in courtrooms across the country. That tension between a federal regulator’s asserted authority and state enforcement actions is a dynamic worth watching alongside other CFTC activity, including the agency’s separate lawsuit against Cash FX Group over an alleged $950 million crypto-forex scheme.
More than a dozen states have now taken enforcement action against Kalshi or sued the company outright, reflecting how contentious the sports-contract question has become for state gambling regulators who see a federally chartered exchange offering products that look, feel and settle much like sports bets.
What It Means for the Market
For Kalshi, the practical stakes are significant. The company reported $38.67 billion in trading volume in August alone, underscoring how central prediction markets — sports-related or otherwise — have become to its business model. A patchwork of state rulings, some favorable and some not, creates operational uncertainty for a platform trying to scale nationally, and the same legal question could eventually shape how competitors such as Polymarket and Crypto.com’s Nadex structure their own sports-linked offerings.
The broader significance lies in the unresolved question of who gets to regulate this fast-growing corner of finance: federal commodities regulators or state gambling authorities. As prediction markets increasingly overlap with traditional exchanges — a convergence visible in moves like Kraken parent Payward’s push to build broader financial infrastructure — jurisdictional clarity becomes more than an academic exercise.
What Comes Next
- Whether the Supreme Court agrees to hear the New Jersey case, which would likely resolve the circuit split nationally.
- How the Fourth Circuit rules in the pending Maryland dispute, adding a fifth data point to the emerging pattern.
- What happens on remand in the Tennessee case, now back before the district court.
- Whether additional states move to enforce gambling laws against Kalshi following the Sixth Circuit’s reasoning.
Source: The Block
This content is for informational purposes only and does not constitute financial or investment advice.
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