Sixth Circuit Upholds State Authority to Regulate Kalshi Sports Contracts as Gambling

A unanimous three-judge panel of the 6th U.S. Circuit Court of Appeals ruled Friday that states possess the authority to regulate sports-related event contracts offered by prediction market platforms, handing the industry its second significant appellate defeat as the legal conflict heads toward the U.S. Supreme Court.

The decision affirms that Ohio and Tennessee may apply their respective gambling statutes to Kalshi’s sports-event contracts. “We hold that Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a ‘swap’ so as to fall within the scope of the CFTC’s ‘exclusive jurisdiction,'” the opinion stated.

Kalshi and similar platforms contend that all event contracts qualify as swaps—a class of financial derivatives regulated exclusively by the Commodity Futures Trading Commission (CFTC). State regulators, however, argue these sports-specific offerings constitute gambling and therefore fall under state sports-betting laws.

This dispute has triggered nationwide litigation: states have sued platforms for allegedly operating illegal gambling operations, while exchanges have countersued to prevent state enforcement actions, asserting federal preemption over what they characterize as federally regulated financial markets.

The CFTC has sued nine states to defend its claimed exclusive jurisdiction over event contracts under the Commodity Exchange Act (CEA). The 6th Circuit panel rejected that argument, ruling that even if the contracts were classified as swaps, the CEA neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling statutes.

The ruling reverses a Tennessee federal district court decision that favored Kalshi and upholds an Ohio federal district court ruling that sided with the states. Neither Kalshi nor the CFTC responded immediately to requests for comment; inquiries were also directed to the attorneys general of Ohio and Tennessee.

With this decision, prediction market platforms have now lost two major appeals court battles concerning sports contracts. Last month, the 9th U.S. Circuit Court of Appeals ruled that Nevada may regulate such contracts as sports wagers rather than swaps. Conversely, the 3rd U.S. Circuit Court of Appeals ruled in April that the CFTC holds exclusive regulatory authority over all swaps, regardless of the underlying event.

New Jersey appealed the 3rd Circuit’s decision to the Supreme Court earlier this month. It remains uncertain whether the high court will intervene now or await further circuit rulings on the specific issue of sports-related event contracts.

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