Share 
Bonus TL;DR
- A federal appeals court ruled Ohio and Tennessee can regulate Kalshi’s event contracts under state gambling laws, rejecting federal preemption.
- The decision deepens a circuit court split over prediction market oversight, potentially setting the stage for U.S. Supreme Court review.
A U.S. appeals court has ruled that Ohio and Tennessee can regulate Kalshi’s sports event contracts under their gambling laws, handing the prediction market operator a setback and widening a federal court split over who oversees these markets.
The 6th U.S. Circuit Court of Appeals said Kalshi failed to show that its contracts are “swaps” subject exclusively to oversight by the Commodity Futures Trading Commission. The court also said the Commodity Exchange Act does not preempt gambling laws in Ohio or Tennessee.
The decision matters beyond those two states because federal appeals courts have now reached different conclusions on the same core question: whether prediction market contracts are governed mainly by federal commodities law or can also be restricted by state gambling regulators.
6th Circuit rejects Kalshi’s preemption argument
According to the ruling, the three-judge panel vacated a preliminary injunction issued by a Tennessee federal judge and upheld the denial of a similar injunction against Ohio.
Judge Julia Smith Gibbons wrote that gambling regulation “lies at the heart of the state’s police power” and said Kalshi had not shown its sports event contracts fit within the Commodity Exchange Act’s core purpose.
In one passage highlighted in the case, Gibbons wrote: “It is, therefore, difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game — or that a 30-leg parlay will hit — would serve (to) advance those goals.”
Kalshi pushed back on the ruling. Spokesperson Dani Lever said, “The ruling shows exactly why a state-by-state patchwork doesn’t work.” Lever added: “Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules.”
Split among appeals courts could draw Supreme Court review
The ruling adds to an increasingly clear divide among federal appellate courts. The article notes that the 9th Circuit said last month that Kalshi’s event contracts are subject to Nevada’s gambling laws, while the 3rd Circuit said in April that the contracts are not subject to New Jersey’s gambling laws.
That split could raise the odds of U.S. Supreme Court review. The article says New Jersey has already asked the high court to overturn the 3rd Circuit’s decision.
For state regulators, the 6th Circuit decision strengthens the case that they can police at least some sports-related prediction contracts under existing gambling statutes. For Kalshi and other prediction market operators, it increases legal uncertainty over whether contracts tied to sports and other events can be offered nationwide under a single federal framework.
Tennessee Attorney General Jonathan Skrmetti called the decision a “great win” and said, “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.”
Kalshi said it does not expect the ruling to survive further legal review.
Source: As reported by Jonathan Stempel.
