A federal appeals court has ruled that Ohio and Tennessee may enforce their sports-betting laws against Kalshi, dealing the prediction-market operator a major setback in its effort to place sports event contracts under exclusive federal commodities regulation.
In a unanimous decision issued Friday, a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit found that Kalshi had not shown its sports contracts qualify as “swaps” under the Commodity Exchange Act. The ruling also said that, even if the contracts met that definition, federal commodities law would not displace Ohio’s or Tennessee’s gambling rules.
The decision upholds an Ohio federal court’s refusal in March to block enforcement action against Kalshi. It also overturns a temporary injunction that had prevented Tennessee from acting against the company, returning that case to the district court.
The result gives state gambling regulators within the Sixth Circuit a stronger legal basis to require prediction-market platforms offering sports contracts to obtain state authorization or stop operating locally. It also sharpens a developing split among federal appeals courts, raising the prospect that the U.S. Supreme Court could eventually settle the conflict.
Sixth Circuit rejects swap argument
Kalshi argued that its contracts, which allow users to trade on the outcome of sporting events, fall within the Commodity Exchange Act’s definition of a swap. Swaps traded on federally regulated designated contract markets fall under the Commodity Futures Trading Commission’s exclusive jurisdiction, according to the company’s position.
The Sixth Circuit rejected that reading of the statute.
The dispute centered on language added by the Dodd-Frank Act that includes contracts tied to an event “associated with a potential financial, economic, or commercial consequence” within the definition of a swap. Kalshi said sporting events can carry economic consequences for broadcasters, advertisers, sponsors and local businesses.
Judge Julia Smith Gibbons, writing for the panel, said those links were too distant to turn the outcome of a game into a federally regulated financial event. The court read the law as covering events with an inherent financial or commercial consequence, such as an interest-rate movement or a corporate debt default.
The opinion described the claimed effects from sports outcomes as “too attenuated, indirect, and speculative.” That interpretation places ordinary sports-event contracts closer to gambling products than to the financial risk-management instruments Congress had in mind when it expanded federal swaps regulation after the 2008 financial crisis.
The court also pointed to Kalshi’s “mention” markets, which allow trading on whether a particular word will be said during a broadcast. Such contracts, the panel said, illustrated the limits of the company’s theory.
“There is no conceivable reason why the market might need to know the probability that a broadcaster says a random word on air,” the opinion said.
The judges noted that Kalshi had previously acknowledged in litigation that its sports event contracts have “no inherent economic significance.”
State enforcement can proceed
Ohio’s case began after Kalshi started listing sports event contracts in January 2025. The Ohio Casino Control Commission then directed the company to stop offering the products in the state without a license. Kalshi sued, seeking a preliminary injunction that would have stopped the state from enforcing its order while the litigation continued.
Chief Judge Sarah D. Morrison of the U.S. District Court for the Southern District of Ohio denied that request in March. The Sixth Circuit affirmed her decision.
Tennessee’s dispute followed a similar path. The Tennessee Sports Wagering Council issued an order in January naming Kalshi, Polymarket and Nadex, Crypto.com’s derivatives platform. Kalshi sued and quickly obtained a temporary restraining order from Judge Aleta A. Trauger.
Friday’s appeals court decision vacated that injunction, allowing Tennessee’s case to move forward under the Sixth Circuit’s legal interpretation.
The panel also rejected Kalshi’s fallback argument that federal law preempts, or overrides, the two states’ gambling laws. Ohio and Tennessee regulate sports betting directly, the court said, while any impact on federally regulated trading venues is incidental.
That conclusion limits an argument prediction-market operators have increasingly used as they expand into contracts tied to elections, economic data, entertainment and sports. Federal registration with the CFTC does not, under the Sixth Circuit’s view, automatically create a shield against state rules governing activities that resemble wagering.
A widening appellate split
The decision adds to conflicting rulings across federal courts. The Ninth Circuit ruled against Kalshi in a Nevada case on Aug. 28, according to the Sixth Circuit’s opinion. The Third Circuit reached the opposite conclusion in April, when a divided 2-1 panel sided with the company in its dispute with New Jersey.
New Jersey Attorney General Jennifer Davenport asked the U.S. Supreme Court on Sept. 2 to review the Third Circuit ruling. A separate appeal involving Maryland remains pending before the Fourth Circuit, the Sixth Circuit said.
Those cases could determine whether prediction-market operators face different legal regimes depending on where their customers live. A platform permitted to offer sports contracts under one appellate court’s reasoning could face cease-and-desist orders in another region.
More than a dozen states, including Connecticut and Michigan, have taken enforcement action or filed lawsuits over Kalshi’s sports contracts, according to the materials in the case. The state campaigns reflect a practical concern for regulators: licensed sportsbooks operate under state-specific rules covering taxation, consumer protections, advertising and responsible-gambling requirements, while federally regulated event-contract platforms have argued for a separate framework.
The Sixth Circuit warned that Kalshi’s interpretation could create an implausibly broad federal system. Because the Commodity Exchange Act requires swaps to trade through regulated venues, the court said the company’s position could potentially attach criminal penalties to large amounts of everyday gambling activity.
The panel cited an amicus brief from former CFTC Chair Gary Gensler, which argued that the theory could reach “every sports wager placed in a casino, on an online sports book, or between two friends at a bar.”
The CFTC supported Kalshi in the Ohio appeal through an amicus brief filed in May under Chair Michael Selig. The agency’s position gives Kalshi support from its primary federal regulator, but Friday’s ruling shows that courts may not accept the commission’s view of where commodities regulation ends and state gambling authority begins.
Curious about regulated prediction markets? Explore compliant event contracts on Toobit and compare them to Kalshi’s contested sports markets.
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