The 6th U.S. Circuit Court of Appeals ruled that Ohio and Tennessee may regulate Kalshi's sports-event contracts under state gambling laws, deepening a split among federal appeals courts over jurisdiction of prediction markets.
A three-judge panel unanimously found that Kalshi had not proven its contracts qualify as swaps under the exclusive jurisdiction of the Commodity Futures Trading Commission. The court also held that even if the contracts were swaps, the federal Commodity Exchange Act does not pre-empt state gambling laws. Judge Julia Smith Gibbons noted that swaps typically involve financial indices and hedging instruments, not gaming contracts. Gambling regulation is a state prerogative, and Congress has reserved primary responsibility for the states.
The ruling reversed a preliminary injunction issued by a Tennessee court that had blocked enforcement of state law against Kalshi. No such injunction had been issued in Ohio.
Federal appeals courts now stand on opposite sides. The 9th Circuit previously allowed Nevada to regulate Kalshi contracts as gambling. The 3rd Circuit ruled in April that the contracts do not fall under New Jersey gambling law and are regulated by the CFTC. New Jersey has filed a petition with the U.S. Supreme Court to challenge the 3rd Circuit decision. The conflicting verdicts may push the matter to the Supreme Court.
Kalshi and other prediction-market platforms argue their contracts are financial derivatives under CFTC supervision. States insist that contracts on sports events are wagers subject to local law. The CFTC has sued nine states, asserting exclusive authority over event contracts.
Tennessee Attorney General Jonathan Skrmetti said Kalshi sought to circumvent state law and avoid the rules and taxes tied to sports betting. Kalshi representative Dani Lever called the decision evidence of the unworkability of state-by-state regulation.
