The 6th U.S. Circuit Court of Appeals ruled Friday that states retain the authority to regulate sports-related event contracts offered by prediction market platforms, delivering a second major appellate loss for the industry as the question heads toward the U.S. Supreme Court.
In a unanimous opinion, a three-judge panel held that Ohio and Tennessee may apply their state gambling laws to Kalshi's sports-event contracts, rejecting the platform's argument that such contracts qualify as "swaps" under the Commodity Exchange Act and therefore fall within the Commodity Futures Trading Commission's exclusive jurisdiction.
"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 panel wrote. The court further noted that even assuming the contracts were swaps, the CEA neither expressly nor impliedly preempts Ohio or Tennessee gambling laws.
Kalshi and other prediction market operators contend that all event contracts constitute swaps—a class of financial derivative overseen by the CFTC. States counter that sports-related offerings are effectively wagers on sporting outcomes and should be regulated under state sports-betting statutes.
The dispute has generated overlapping litigation nationwide. States have sued prediction market platforms for allegedly operating illegal gambling enterprises, while the exchanges have filed suit to block enforcement of local laws, arguing they operate as federally regulated financial markets. The CFTC has intervened by suing nine states to defend what it views as its exclusive regulatory authority over event contracts under the Commodity Exchange Act.
The 6th Circuit's decision overturns a Tennessee federal district court ruling that had favored Kalshi and reaffirmed an Ohio district court judgment that sided with the states.
The ruling marks the second adverse appellate outcome for prediction market platforms. Last month, the 9th U.S. Circuit Court of Appeals ruled that Nevada may regulate sports-related event contracts, characterizing them as sports bets rather than swaps. In April, the 3rd Circuit ruled against New Jersey, holding that the CFTC holds exclusive authority over all swaps regardless of contract type. New Jersey petitioned the Supreme Court earlier this month to review that decision.
It remains unclear whether the Supreme Court will grant certiorari now or wait for additional circuit court decisions on sports-related event contracts before taking up the question.
Kalshi and the CFTC did not immediately respond to requests for comment. CNBC also contacted the offices of the Ohio and Tennessee attorneys general for comment.
Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.
