Prediction market platform Kalshi has suffered a major legal defeat after a federal appeals court determined that state authorities in Ohio and Tennessee have the legal right to enforce local gambling laws against sports-event contracts traded on the exchange. The decision represents a substantial setback for the company’s efforts to establish exclusive federal oversight for its event-based financial derivatives, while further solidifying a sharp division among federal appellate courts regarding the regulatory boundaries between state gaming enforcement and federal commodities oversight.
The legal blow came from the U.S. Court of Appeals for the 6th Circuit, where a three-judge panel issued a unanimous ruling against Kalshi. In its opinion, the panel rejected the exchange’s legal arguments, finding that Kalshi had failed to demonstrate that its sports-event contracts legally qualify as "swaps" under the regulatory jurisdiction of the Commodity Futures Trading Commission. By failing to establish that these financial instruments fall under the federal statutory framework governing commodities and swaps, Kalshi was unable to convince the panel that federal law overrides or preempts state-level gambling and gaming codes in Ohio and Tennessee.
At the core of the dispute is a fundamental disagreement over how prediction market products ought to be classified under federal and state law. Kalshi has consistently maintained that its platform offers standardized financial derivatives and event contracts that fall directly within the federal regulatory domain of the Commodity Futures Trading Commission. Under this framework, Kalshi argues that the Commodity Exchange Act grants the federal agency exclusive regulatory authority over such contracts, thereby shielding the exchange from a fragmented nationwide matrix of individual state gambling statutes.
State gaming authorities in Ohio and Tennessee, however, argued that contracts tied to the outcomes of athletic events are functionally equivalent to sports wagering. State regulators contended that allowing a federally regulated prediction market to offer sports-based contracts without adhering to local gaming statutes would undermine longstanding state police powers, bypass established licensing protocols, and circumvent state gambling laws designed to oversee wagering within state borders. By affirming the position of Ohio and Tennessee, the 6th Circuit panel agreed that state authorities retain their statutory power to apply state gambling laws to these sports-event contracts, effectively rejecting Kalshi’s claim of blanket federal preemption.
The 6th Circuit’s decision does not exist in a judicial vacuum; rather, it significantly worsens a growing split among federal circuit courts across the country. Just last month, the U.S. Court of Appeals for the 9th Circuit reached a similar conclusion, siding against Kalshi and upholding the authority of state regulators to enforce local laws against sports-related prediction market contracts. The alignment between the 6th and 9th Circuits establishes a firm legal precedent across vast regions of the United States, supporting the argument that state gaming commissions possess legitimate regulatory authority over sports-based event contracts offered by prediction platforms.
However, these recent rulings directly conflict with a key decision rendered earlier this year by the U.S. Court of Appeals for the 3rd Circuit. In April, the 3rd Circuit ruled in favor of Kalshi, granting the company interim relief that allowed it to continue operating and offering its contracts in New Jersey while its underlying legal appeal proceeded. In that pivotal April decision, the 3rd Circuit expressed the view that Kalshi was likely to succeed on the merits of its core argument—namely, that federal commodities law preempts state-level gambling regulations when applied to CFTC-regulated event contracts.
This stark divergence between the 3rd Circuit on one side and the 6th and 9th Circuits on the other has created a highly fragmented legal environment for prediction markets operating in the United States. In jurisdictions covered by the 3rd Circuit, prediction markets have found judicial
support for the argument that federal commodities regulation takes precedence over state gaming oversight. Conversely, in states falling under the 6th and 9th Circuits, regulators hold the clear legal upper hand, empowered by federal appellate decisions allowing them to enforce state gambling statutes against sports-event contracts.
This clear circuit split has rapidly elevated the legal dispute to a national level, setting up what legal experts view as a potential battle before the U.S. Supreme Court. Because federal circuit splits regarding federal preemption and statutory interpretation are among the primary criteria used by the Supreme Court to select cases for review, the conflicting decisions across the country have increased the likelihood that the nation’s highest court will ultimately be forced to intervene to establish a uniform federal rule.
The push for Supreme Court involvement has already gained formal momentum. A coalition of state lawmakers recently filed an amicus brief with the U.S. Supreme Court, explicitly asking the justices to take up the ongoing legal battle between Kalshi and state gaming authorities. The lawmakers urged the Supreme Court to grant review in order to definitively resolve the jurisdictional conflict that has pitted state gaming boards against federal oversight agencies.
The amicus brief filed by state legislators underscores the broader economic, regulatory, and constitutional questions at stake in the conflict. State lawmakers argue that state governments have a deeply rooted constitutional interest in regulating gambling and sports betting within their geographic boundaries, both to protect consumers and to preserve tax revenues generated by state-licensed gaming operations. From the perspective of state officials, allowing event-contract platforms to bypass state regulators under the umbrella of federal commodities oversight threatens to dismantle state-level gaming oversight that has been developed over decades.
On the other side of the debate, prediction market operators and supporters of federal oversight argue that event contracts represent a modern financial tool used for hedging risk and gauging public expectations. Proponents assert that requiring platforms like Kalshi to comply with fifty distinct sets of state gaming laws creates an insurmountable regulatory barrier for national exchanges, frustrating the primary purpose of federal commodities legislation, which was designed to establish a unified national market under federal guidance.
As long as the circuit split remains unresolved by the Supreme Court, prediction market platforms face an increasingly complex legal map. Companies operating in the space must navigate differing legal standards depending entirely on the geographic boundaries of federal judicial circuits. In some states, exchanges may operate under the protection of federal preemption arguments, while in others, state regulatory agencies retain full authority to seek injunctions, impose fines, or issue cease-and-desist orders under state gambling legislation.
The 6th Circuit’s unanimous decision against Kalshi reinforces the legal upper hand currently held by state gaming authorities in significant portions of the country. By ruling that Kalshi failed to establish that its sports-event contracts constitute federally protected swaps, the 6th Circuit panel made clear that prediction markets cannot automatically claim immunity from state gambling enforcement merely by designating their products as financial event contracts.
With federal appellate courts now directly at odds over the reach of the Commodity Exchange Act and the preservation of state police powers over gambling, the legal battle over prediction markets appears poised for a final showdown before the Supreme Court, as state lawmakers, federal regulators, and market participants await a definitive answer on who ultimately holds regulatory jurisdiction over event-based contracts.