Key points

  • The Sixth Circuit unanimously ruled that Kalshi failed to show its sports-event contracts qualify as swaps under federal commodities law.
  • The court said the Commodity Exchange Act does not preempt Ohio and Tennessee from applying their gambling laws to the contracts.
  • The panel affirmed Ohio's preliminary-injunction denial, vacated Kalshi's Tennessee injunction and sent both cases back for further proceedings.

A federal appeals court has ruled that Ohio and Tennessee may apply their gambling laws to sports-event contracts offered by prediction-market operator Kalshi, adding another appellate decision to a growing split over the boundary between federal derivatives regulation and state gaming authority. In a unanimous opinion issued September 25, the U.S. Court of Appeals for the Sixth Circuit said Kalshi had not shown that the contracts are swaps within the Commodity Exchange Act's exclusive federal framework.

State rules are not preempted

Judge Julia Smith Gibbons, writing for a three-judge panel, said the sports contracts do not fit the statutory swap definition advanced by Kalshi. The court also held that even if the products were treated as swaps, the Commodity Exchange Act neither expressly nor implicitly prevents Ohio and Tennessee from enforcing their gambling statutes. CoinDesk and Reuters separately reported that the ruling leaves the states free to regulate the products under their existing gaming regimes.

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Kalshi operates a federally designated contract market overseen by the Commodity Futures Trading Commission. It began offering sports-event contracts in early 2025, including markets tied to tournament winners, match statistics and other game outcomes. Ohio and Tennessee require sports-betting operators to hold state licences, verify customers are at least 21 and comply with local consumer-protection rules. According to the opinion, Kalshi does not follow those state gaming requirements because it argues federal commodities law governs the contracts exclusively.

Different outcomes in two lower courts

The consolidated appeal arose from opposite preliminary rulings. A federal judge in Ohio denied Kalshi's request to block state enforcement, while a Tennessee judge granted an injunction that temporarily protected the company. The Sixth Circuit affirmed the Ohio denial, vacated the Tennessee injunction and remanded both cases for further proceedings. The panel stopped after finding that Kalshi had not shown a likelihood of success on the merits, without resolving the remaining preliminary-injunction factors.

That procedural posture matters. The decision does not impose a permanent nationwide ban on Kalshi's sports markets, nor does it finally resolve every claim in either lawsuit. It removes the Tennessee protection and allows both states' cases to continue under the appellate court's interpretation. State agencies will still need to apply their own laws, while Kalshi may pursue further review.

Circuit split increases legal uncertainty

The Sixth Circuit acknowledged that federal appeals courts are now divided. It said the Third Circuit has adopted a position favourable to Kalshi, while the Ninth Circuit reached the opposite conclusion; a related Fourth Circuit matter remains pending. That split leaves prediction-market operators, state regulators and customers subject to different legal conditions depending on jurisdiction and increases the possibility that the U.S. Supreme Court could eventually be asked to settle the issue.

For prediction markets, the practical question is whether federal exchange status creates a uniform national licence for sports contracts or coexists with state gambling oversight. The Sixth Circuit chose the latter reading for Ohio and Tennessee. Its decision gives state regulators more room to enforce licensing and age rules while the broader legal contest continues, but it does not decide how every event contract should be classified or how courts outside the circuit will rule.

Sources

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