Court Upholds State Regulation of Kalshi’s Sports Prediction Markets

The 6th U.S. Circuit Court of Appeals ruled on Friday that states have the authority to regulate sports-related contracts on prediction market platforms like Kalshi. This decision marks a significant legal setback for the industry as the dispute over regulatory jurisdiction heads toward the U.S. Supreme Court.

The unanimous ruling by a three-judge panel affirmed that Ohio and Tennessee can enforce their gambling laws on Kalshi’s sports-event contracts. The court concluded that Kalshi failed to prove its sports contracts qualify as 'swaps' under federal law, which would place them under the Commodity Futures Trading Commission’s (CFTC) exclusive jurisdiction.

Kalshi and similar platforms contend that all event contracts are swaps, financial instruments overseen by the CFTC. However, several states argue these sports-related contracts function as gambling and therefore fall under state sports betting regulations. This disagreement has sparked a series of legal confrontations nationwide, with states suing platforms for unauthorized gambling operations and platforms suing states to prevent enforcement of local laws.

The CFTC has taken legal action against nine states, asserting exclusive federal regulatory authority under the Commodity Exchange Act. The 6th Circuit panel rejected this claim, stating, "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."

This ruling reverses a previous federal district court decision in Tennessee that favored Kalshi and upholds an earlier Ohio federal district court judgment siding with state regulators. Tennessee Attorney General Jonathan Skrmetti praised the decision, emphasizing the importance of regulations in protecting sports bettors: "Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed. 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."

Dani Lever, spokesperson for Kalshi, expressed disagreement with the ruling. She highlighted the challenges created by inconsistent state laws, saying, "The ruling shows exactly why a state-by-state patchwork doesn't work. 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. Markets can't operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules."

The CFTC has not yet issued a comment, and requests for statements from the Ohio Attorney General's office remain pending.

This latest appellate decision adds to a growing body of conflicting rulings involving prediction market platforms and state gambling authorities. Last month, the 9th U.S. Circuit Court of Appeals affirmed Nevada's right to regulate sports-related event contracts, classifying them as sports bets rather than swaps. Conversely, in April, the 3rd U.S. Circuit Court of Appeals ruled in favor of New Jersey, determining that the CFTC holds exclusive jurisdiction over all swaps regardless of contract type. New Jersey has since appealed this ruling to the Supreme Court.

It remains uncertain whether the Supreme Court will take up the New Jersey case immediately or wait until additional appellate decisions clarify the regulatory landscape for sports prediction markets. Meanwhile, the industry faces an ongoing legal tug-of-war between state authorities and federal regulators over the classification and governance of these contracts.

Kalshi, founded to offer a novel platform for trading event contracts, including sports predictions, has faced increased scrutiny amid the rapid expansion of online sports betting and financial derivatives markets. This ruling reaffirms the role of state laws in an area where the boundaries between financial instruments and gambling continue to blur.