A federal appeals court has sided with Ohio and Tennessee in their efforts to regulate prediction-market operator Kalshi, ruling that its sports-related event contracts can fall under state gambling laws.
The decision from the 6th US Circuit Court of Appeals in Cincinnati adds another layer to an increasingly divided legal landscape over prediction markets. Federal appeals courts have now reached conflicting conclusions about whether companies such as Kalshi should primarily answer to state gambling regulators or the federal Commodity Futures Trading Commission (CFTC).
The disagreement could ultimately put the issue before the US Supreme Court.
Kalshi has argued that its contracts are financial products overseen by the CFTC and that allowing individual states to impose their own gambling rules would create an unworkable patchwork of regulations.
“The ruling shows exactly why a state-by-state patchwork doesn’t work,” Kalshi spokesperson Dani Lever said, adding that the company believes the decision will not withstand further legal scrutiny.
Prediction markets allow users to buy contracts tied to the outcome of future events. Sports have become a major part of the business, but contracts can also cover elections, weather and entertainment events.
Court rejects Kalshi’s “swap” argument
Circuit Judge Julia Smith Gibbons, writing for a unanimous three-judge panel, said Kalshi had not established that its sports contracts qualified as “swaps” under federal commodities law.
The court also rejected Kalshi’s argument that the federal Commodity Exchange Act prevents Ohio and Tennessee from enforcing their gambling regulations against the company.
Gibbons drew a distinction between conventional financial swaps, which are generally used to manage or transfer economic risks, and contracts based on the outcome of sporting events.
She questioned how contracts involving matters such as the number of corner kicks in a soccer match, or whether a lengthy sports parlay will succeed, would advance the financial risk-management and price-discovery purposes of federal commodities legislation.
The ruling emphasizes the traditional authority states have over gambling within their borders.
As a result, the appeals court overturned a preliminary injunction that had prevented Tennessee from enforcing its gambling laws against Kalshi. It also left intact an Ohio federal court’s earlier refusal to block enforcement there.
Appeals courts split over prediction markets
The ruling deepens a growing divide among federal appellate courts.
The 9th Circuit, based in San Francisco, recently concluded that Kalshi’s event contracts could be regulated under Nevada gambling laws. By contrast, the 3rd Circuit in Philadelphia previously ruled that New Jersey’s gambling laws did not apply to Kalshi’s contracts.
New Jersey has asked the Supreme Court to review that decision.
The competing rulings have placed prediction-market operators at the center of a broader dispute over the boundaries between federal financial regulation and state gambling authority.
Ohio and Tennessee are among a number of states seeking tighter controls on prediction-market companies, including Kalshi and Polymarket.
Tennessee Attorney General Jonathan Skrmetti welcomed the 6th Circuit ruling, describing it as a victory for the state’s regulatory approach. He argued that sports wagering is subject to regulation because of the potential harms associated with gambling.
The appeals panel included Gibbons, who was appointed by President George W. Bush, along with Judges Eric Clay and Rachel Bloomekatz, appointed by Presidents Bill Clinton and Joe Biden respectively.
With federal courts now divided over a question affecting a rapidly expanding market, the legal battle over who gets to regulate prediction contracts is far from settled.
