The 6th U.S. Circuit Court of Appeals ruled that Ohio and Tennessee can regulate Kalshi’s sports-related event contracts under state gambling laws, adding to a growing split among federal appeals courts over whether prediction markets fall under state gambling rules or federal derivatives regulation.
The unanimous ruling by a three-judge panel in Cincinnati found that Kalshi had not shown its sports-event contracts qualified as “swaps” subject to the Commodity Futures Trading Commission’s (CFTC) exclusive jurisdiction.
“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 court said.
The panel also ruled that even if the contracts were swaps, the Commodity Exchange Act did not preempt Ohio or Tennessee gambling laws.
“Even assuming that Kalshi’s sports-event contracts are swaps, we alternatively hold that the CEA neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws,” the opinion said.
The decision vacated a preliminary injunction issued by a Tennessee federal judge that had blocked enforcement of the state’s gambling laws against Kalshi, while upholding the denial of a similar injunction in Ohio.
Judge Julia Smith Gibbons, writing for the panel, said swaps generally involve financial measures, indices and instruments used to hedge risks, rather than gaming-related contracts.
“Gambling regulation ‘lies at the heart of the state’s police power,’” Gibbons wrote, adding that Congress had given states primary responsibility for determining what forms of gambling can take place within their borders.
“It is, therefore, difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game — or that a 30-leg parlay will hit — would serve (to) advance those goals,” she wrote.
The ruling deepens a split among federal appeals courts over prediction-market regulation. The 9th U.S. Circuit Court of Appeals previously ruled that Nevada could regulate Kalshi’s sports-related contracts as gambling, while the 3rd Circuit ruled in April that Kalshi’s contracts were not subject to New Jersey gambling laws and that the CFTC has exclusive jurisdiction over swaps.
New Jersey has petitioned the U.S. Supreme Court to overturn the 3rd Circuit ruling. The conflicting decisions could ultimately bring the issue before the Supreme Court, although it is unclear whether the court will take up the matter now or await further appellate rulings.
Kalshi and other prediction-market platforms argue that their event contracts are financial derivatives regulated by the CFTC. States contend that sports-related contracts amount to gambling and should be governed by state sports-betting laws.
The CFTC has sued nine states to defend what it considers its exclusive authority over event contracts.
Tennessee Attorney General Jonathan Skrmetti welcomed the latest ruling.
“Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed,” Skrmetti said.
“Sports wagering is heavily regulated because it can do a lot of harm, and I’m glad we thwarted Kalshi’s efforts to remove every safeguard and put Tennessee sports bettors at risk,” he added.
Kalshi spokesperson Dani Lever said the company disagreed with the decision.
“The ruling shows exactly why a state-by-state patchwork doesn’t work,” Lever said.
“Courts can’t agree on the basics: Some say federal law covers these contracts, and others say it doesn’t. Some recognize that sports have real economic impact, while others (incorrectly) claim they don’t,” she added.
“Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules.”
