Kalshi Loses Another Appeals Court Battle Over State Oversight of Sports Contracts

A federal appeals court has determined that Kalshi’s sports prediction contracts do not qualify as swaps, meaning the products can be regulated under state gaming laws rather than the federal framework administered by the Commodity Futures Trading Commission (CFTC).

The Sixth Circuit Court of Appeals issued the ruling Friday in two cases involving Kalshi and regulators in Ohio and Tennessee. Kalshi had asked the courts to prevent the states from pursuing enforcement actions against its sports-related contracts. The request was rejected by an Ohio federal court but was granted by a federal court in Tennessee.

The decision adds another chapter to the growing legal conflict over how sports prediction markets should be regulated. Since these platforms gained greater attention following the 2024 U.S. election, states have argued that sports contracts offered by prediction markets compete with state-licensed gambling operations and resemble wagers available through sportsbooks and betting apps.

State regulators have raised concerns beyond the nature of the contracts themselves. They have pointed to differences in tax treatment, arguing that federally regulated prediction markets can compete with state gambling operators without paying state gambling taxes. Age limits have also become an issue because some prediction markets permit participation at 18, while many state gambling businesses impose a minimum age of 21.

The Sixth Circuit agreed that Kalshi was entitled to challenge the state regulators but rejected the company’s position that its sports contracts were swaps subject to federal regulation.

The panel’s analysis centered on whether the contracts involve events connected to a possible financial, economic or commercial consequence, as required by the relevant federal statute. The judges concluded that Kalshi’s sports contracts did not fall within that definition.

To illustrate the distinction, the court referred to a hypothetical involving the New York Giants winning the Super Bowl. Under one interpretation, the Giants’ victory would itself be the event described in the contract. Under another, the Super Bowl game would be the event, with the Giants’ victory representing the outcome.

The judges said the law does not clearly establish that an event must be defined separately from its outcome. Without an explicit statutory requirement, the court declined to impose that distinction.

The Sixth Circuit ruling joins other federal appellate decisions that have reached different conclusions about prediction market oversight. The Third Circuit has held that the CFTC has jurisdiction over prediction markets, while the Eighth Circuit has determined that sports-related contracts are not swaps.

That disagreement among the circuits leaves the legal status of sports prediction contracts unsettled at the federal level. The Third Circuit case has already been appealed to the U.S. Supreme Court, which could eventually be asked to address the conflict between federal commodities regulation and state gambling laws.