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Another appeals court rules against prediction market provider Kalshi, says sports contracts are subject to state reg...
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A federal appeals court dealt a major setback to prediction-market provider Kalshi on Friday, ruling that its sports-related event contracts are not commodity swaps and therefore fall under state gaming regulation. The Sixth Circuit Court of Appeals panel said Kalshi had the right to challenge state regulators but could not rely on federal swap rules to block their enforcement. The decision addresses cases involving regulators in Ohio and Tennessee and adds another piece to a growing legal conflict over the boundaries between federal derivatives law and state gambling authority.
Kalshi had sought injunctions preventing Ohio and Tennessee from suing the company over its sports-event contracts. A federal district court in Ohio denied Kalshi’s request, while a judge in Tennessee granted a similar injunction, leaving the company facing inconsistent treatment across the two states. Prediction markets had expanded rapidly after the 2024 election, prompting states to argue that contracts tied to football, basketball, baseball, and other outcomes are functionally equivalent to wagers offered by licensed sportsbooks.
The Sixth Circuit accepted that Kalshi’s contracts are conditioned on the occurrence of an event but concluded that sports outcomes do not satisfy the relevant statutory requirement. Under federal law, the panel said, an event must be associated with a potential financial, economic, or commercial consequence. The judges used a hypothetical New York Giants Super Bowl contract to illustrate their reasoning: if the contract’s event is the game itself, a Giants victory is an outcome, while defining the event as a Giants championship would make the contract’s condition indistinguishable from its result.
“The proper terminology turns on how the event itself is defined,” the panel said, adding that the statute does not clearly require an event to be defined in a way that excludes its outcomes. That interpretation prevented Kalshi from characterizing every sports contract as a federally regulated swap. Without swap status, the CFTC cannot provide the federal regulatory foundation Kalshi wanted to invoke against state gambling laws, leaving ordinary state gaming statutes and licensing systems in control.
The decision follows closely related but inconsistent rulings elsewhere. Last year, a Third Circuit panel held that the CFTC had jurisdiction over prediction-market contracts, while an Eighth Circuit panel concluded that sports-related contracts were not swaps. The Sixth Circuit now aligns with the Eighth Circuit’s view, creating a clear circuit split over whether prediction-market contracts involving sports events qualify as federally regulated derivatives. The Third Circuit case has already been appealed to the U.S. Supreme Court, giving the high court an opportunity to resolve the issue if it accepts the case.
States are likely to view the ruling as support for enforcing gambling restrictions, taxes, licensing requirements, and age limits against prediction-market operators. A central concern is that federally overseen platforms may compete with state-regulated sportsbooks without paying comparable taxes, while often allowing customers as young as 18 rather than imposing the standard 21-year minimum. Kalshi, meanwhile, may seek further review and is expected to argue that treating its products as ordinary wagers disregards the federal regulatory framework that has allowed event contracts to operate nationwide.
The ultimate significance of the ruling may depend on Supreme Court intervention. A definitive national decision could establish uniform rules for a fast-growing industry, or send the issue back to the states and produce a patchwork of restrictions. For now, the ruling gives regulators stronger leverage and increases pressure on prediction-market providers to clarify product design, age controls, tax arrangements, and state licensing obligations. It also signals that federal oversight will not automatically displace state gaming authority whenever a company labels its product a prediction market.
