Appeals court rules that states can regulate Kalshi’s sports prediction markets, dealing another legal blow to platforms

The 6th U.S. Circuit Court of Appeals ruled on Friday that states have a right to regulate sports-related event contracts on prediction market platforms, marking a second major legal defeat for the industry as a fight at the U.S. Supreme Court looms.

In a unanimous decision, the three judge panel said that Ohio and Tennessee are permitted to apply their state gambling laws to Kalshi's sports-related 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 said.

Kalshi and other prediction market platforms argue all event contracts are swaps , a type of financial derivative that is regulated by the Commodity Futures Trading Commission . However, states assert that platforms' sports-related offerings amount to gambling , and thus should be regulated by their laws related to sports betting.

This disagreement has spawned a legal battle across the country as states sue platforms for operating what they often claim are illegal gambling operations, while exchanges also sue states to block them from enforcing local laws on what they argue should be federally-regulated financial exchanges.

The CFTC has sued nine states to defend what it believes is its exclusive right to regulate event contracts, given to it by the Commodity Exchange Act. But the 6th Circuit panel rejected that notion.

"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 overturns a Tennessee federal district court ruling that sided with Kalshi, and reaffirms a decision by a federal district court in Ohio that sided with the states' argument.

"Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed," said Jonathan Skrmetti, Tennessee's attorney general.