Key Highlights
- The 6th U.S. Circuit Court of Appeals ruled unanimously that Ohio and Tennessee can enforce state gambling laws against Kalshi’s sports prediction markets, rejecting the platform’s claim that its contracts fall under exclusive federal CFTC jurisdiction.
- The decision reverses a Tennessee federal district court ruling that had favored Kalshi while upholding an Ohio district court decision siding with state regulators, creating a split that may push the issue toward the U.S. Supreme Court.
- Ohio’s Casino Control Commission has issued a cease-and-desist order demanding Kalshi stop offering sports contracts to Ohio residents and warned licensed sportsbooks against partnering with the exchange.
Sixth Circuit Hands States Major Victory in Prediction Market Jurisdiction Fight
A unanimous three-judge panel of the 6th U.S. Circuit Court of Appeals dealt a significant blow to Kalshi on Friday, ruling that states retain the authority to apply local gambling statutes to the platform’s sports event contracts. The decision marks the second major legal setback for the prediction-market industry as the regulatory battle over whether event contracts constitute federally regulated financial derivatives or state-governed gambling products inches closer to the U.S. Supreme Court.
Court Rejects Kalshi’s ‘Swap’ Classification Argument
Kalshi and other prediction-market operators have long contended that their event contracts qualify as “swaps”—a category of financial derivatives falling under the exclusive regulatory purview of the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act (CEA). The states, led by Ohio and Tennessee, countered that sports-event contracts are fundamentally gambling products subject to state sports-betting licensing regimes. The appeals court sided decisively with the states.
“We hold that Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a ‘swap’ so as to fall within the scope of the CFTC’s ‘exclusive jurisdiction,’” the judges wrote in their opinion. The panel went further, establishing an alternative holding that even if the contracts were deemed swaps, federal commodities law would not displace state gambling regulations. “Even assuming that Kalshi’s sports-event contracts are swaps, we alternatively hold that the CEA neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws,” the opinion stated.
Tennessee Attorney General Accuses Kalshi of Regulatory End Run
The ruling reverses a Tennessee federal district court decision that had backed Kalshi while leaving intact an Ohio district court ruling favoring the states. Tennessee Attorney General Jonathan Skrmetti characterized the platform’s strategy as a deliberate attempt to circumvent consumer protections and tax obligations. “Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed,” Jonathan said. He emphasized the public-policy rationale behind strict gambling oversight: “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.”
Ohio Regulator Escalates Enforcement With Cease-and-Desist Order
Parallel to the appellate proceedings, the Ohio Casino Control Commission (OCCC) has taken direct administrative action. The commission sent Kalshi a cease-and-desist letter asserting that the exchange offered sports event contracts to Ohio residents without obtaining a required sports gaming license. The notice, documented in court filings as Schuler, DE 1-1, includes a demand on Page ID 26 ordering the company to “immediately cease offering these sports wagering products unlawfully in Ohio.”
Age-Verification Violations and Warnings to Licensed Operators
The OCCC further accused Kalshi of making unlicensed sports products available to individuals under 21, Ohio’s legal gambling age. On Page ID 27 of the same filing, the regulator cited Ohio Revised Code Section 3775.99(A)(2), calling the practice “a flagrant disregard of Ohio’s statutory gambling age limit.” In a related move, the commission warned licensed Ohio sportsbooks—in Schuler, DE 1-5, Page IDs 57-59—that assisting an unlicensed operator could jeopardize their own licenses. The OCCC stated it would “consider whether a licensed operator chose to work with a company it viewed as operating illegally and could take administrative action against any operator that did.”
Kalshi responded in court filings (Schuler, DE 1-2, Page IDs 29-30) by citing the now-reversed district court rulings in its favor, describing itself as “a federally licensed exchange . . . authorized to operate its market in all 50 states” and asserting that no state could regulate its activities. The company labeled the OCCC’s warning to sportsbooks a “clear attempt” to limit its business relationships, including those with no nexus to Ohio, and disputed the commission’s characterization of its operations as “online sports gaming.”
Why This Matters: Federalism, Consumer Protection, and the Future of Event Contracts
The Sixth Circuit’s decision deepens a circuit split on the central question of whether the CEA grants the CFTC exclusive jurisdiction over event contracts, effectively preempting state gambling laws. Other circuits have reached differing conclusions, and the CFTC itself has sued nine states arguing for federal primacy—a position the Sixth Circuit explicitly rejected. This judicial fragmentation creates a “state-by-state patchwork” that Kalshi spokesperson Dani Lever warned makes market operation untenable. “Courts can’t agree on the basics: Some say federal law covers these contracts, and others say it doesn’t. Some recognize that sports have real economic impact, while others (incorrectly) claim they don’t,” Dani said. “Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules.” The practical consequence is immediate: Kalshi must exit or seek licenses in Ohio and Tennessee, while other states emboldened by the ruling may pursue similar enforcement. The next flashpoint will likely be a petition for certiorari to the U.S. Supreme Court, which could finally resolve the statutory interpretation of “swap” and the scope of CEA preemption.
Frequently Asked Questions
- What exactly did the Sixth Circuit decide regarding Kalshi’s sports contracts?
- The court held that Kalshi’s sports-event contracts do not meet the statutory definition of a “swap” under the Commodity Exchange Act, so the CFTC does not have exclusive jurisdiction. Even if they were swaps, the CEA does not expressly or impliedly preempt Ohio’s or Tennessee’s gambling laws, allowing those states to enforce their sports-betting regulations against Kalshi.
- Does this ruling apply nationwide or only in Ohio and Tennessee?
- The binding precedent applies within the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee). However, the reasoning is persuasive authority elsewhere and encourages other states to pursue similar enforcement. The CFTC’s pending lawsuits against nine states remain active in other circuits.
- What immediate actions must Kalshi take following the cease-and-desist order?
- Kalshi must immediately stop offering sports wagering products to Ohio residents. The OCCC also warned that any licensed Ohio sportsbook partnering with Kalshi risks administrative action against its own license, effectively pressuring the industry to sever ties with the exchange in Ohio.