Another federal appeals court ruled against Kalshi on Friday, clearing the way for Ohio and Tennessee to enforce their sports betting laws against the prediction market operator.
The unanimous Sixth Circuit decision rejected the argument that Kalshi sports contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission, a position at the center of dozens of legal battles in a growing nationwide dispute over prediction markets.
The ruling deepens a split among federal appeals courts as the U.S. Supreme Court weighs New Jersey‘s petition to resolve the dispute.
“This is a great win for Tennessee,” Atty. Gen. Jonathan Skrmetti said Monday. “Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed. 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.”
Court rejects federal preemption argument
The three-judge panel found that Kalshi’s sports contracts do not qualify as swaps under the Commodity Exchange Act.
Writing for the court, Judge Julia Smith Gibbons said qualifying swaps must involve events with inherent financial or economic consequences. Sporting outcomes may have indirect economic effects, but those connections are insufficient under the statute, she said.
“Unlike contracts based on financial values or instruments, Kalshi’s sports-event contracts have only downstream economic consequences, assuming they have the potential to cause economic consequences at all.
The judges also concluded that even if Kalshi’s sports contracts qualified as swaps, the CEA would not prevent states from enforcing their gambling laws. The court pointed to geofencing as a way to comply with state laws, which Kalshi has already agreed to implement in Nevada and on in some parts of California.
“In our view, the exclusive jurisdiction provision displaces direct enforcement and regulatory authority pertaining to the licensing and operation of DCMs. But ancillary regulations that only incidentally burden DCMs do not come within the provision’s substantive scope… Kalshi complains that geofencing is ‘technically challenging, time-consuming, and expensive.’ But ‘expensive does not mean impossible.’”
Kalshi suffers another court loss
The decision upholds an Ohio federal judge’s denial of Kalshi’s request for a preliminary injunction and overturns a Tennessee injunction that had blocked state enforcement. Ohio regulators have separately proposed a $5 million fine against Kalshi.
The Ninth Circuit recently sided with Nevada regulators and California tribes in separate cases against Kalshi. The Third Circuit reached the opposite conclusion in April, blocking New Jersey from enforcing its gambling laws against the company.
States have prevailed in 38 of 43 rulings involving preliminary injunctions, temporary restraining orders and stays pending appeal, according to gaming attorney Daniel Wallach.
CFTC intervenes after similar decisions
The ruling raises questions about whether the CFTC will intervene. The agency filed a brief supporting Kalshi in May, arguing that federal law gives it exclusive jurisdiction over prediction markets.
In July, the agency ordered Kalshi to honor outstanding Michigan trades despite a state court directive to cancel them. In August, it directed Kalshi to continue operating in New York despite a similar lawsuit.
Ohio and Tennessee can now pursue enforcement, although Friday’s ruling sets no deadline for Kalshi to withdraw from either state. Both lawsuits remain ongoing.
