The 6th U.S. Circuit Court of Appeals has determined that Ohio and Tennessee have the authority to govern Kalshi's contracts related to sports events under their respective gambling regulations. This ruling contributes to the ongoing debate among federal appellate courts regarding whether prediction markets should be categorized under state gambling laws or fall under federal derivatives oversight.
A unanimous decision from a three-judge panel in Cincinnati concluded that Kalshi did not adequately demonstrate that its sports-event contracts qualified as “swaps” that would place them under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC).
The court stated, “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.’”
Furthermore, the panel indicated that even if the contracts were indeed swaps, the Commodity Exchange Act (CEA) does not supersede the gambling laws of Ohio or Tennessee. “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 ruling noted.
This decision annulled a preliminary injunction from a federal judge in Tennessee that had prevented the enforcement of state gambling laws against Kalshi, while affirming the rejection of a similar injunction in Ohio.
Judge Julia Smith Gibbons, who authored the opinion for the panel, emphasized that swaps are typically associated with financial measures and instruments used for risk management, rather than with gaming contracts. “Gambling regulation lies at the heart of the state’s police power,” she stated, highlighting that Congress has entrusted states with the primary role in determining permissible gambling activities within their jurisdictions.
Gibbons further remarked, “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.”
This ruling intensifies the division among federal appellate courts concerning the regulation of prediction markets. Previously, the 9th U.S. Circuit Court of Appeals ruled that Nevada could regulate Kalshi’s sports-related contracts as gambling, while the 3rd Circuit decided in April that Kalshi's contracts were not subject to New Jersey gambling laws and that the CFTC holds exclusive authority over swaps.
New Jersey has sought a review from the U.S. Supreme Court to overturn the 3rd Circuit's ruling. The conflicting decisions may prompt the Supreme Court to address the matter, although it remains uncertain whether the court will act immediately or wait for additional appellate decisions.
Kalshi and similar prediction-market platforms maintain that their event contracts are financial derivatives overseen by the CFTC. In contrast, states argue that contracts related to sports events are essentially gambling activities that should be regulated under state sports betting laws.
The CFTC has initiated legal action against nine states to assert what it considers its exclusive jurisdiction over event contracts.
Tennessee Attorney General Jonathan Skrmetti expressed approval of the recent ruling, stating, “Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed.” He added, “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.”
In response, Kalshi spokesperson Dani Lever expressed disagreement with the court's decision, stating, “The ruling shows exactly why a state-by-state patchwork doesn’t work.” She highlighted the inconsistency among courts regarding the fundamental issues, noting that some courts believe federal law applies to these contracts while others do not. “Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules,” she concluded.