The 6th U.S. Circuit Court of Appeals ruled unanimously on Friday that Ohio and Tennessee may apply their state gambling laws to Kalshi's sports-related event contracts, delivering a second consecutive appellate defeat for the prediction market industry as a potential Supreme Court showdown draws closer.
The three-judge panel held that Kalshi had not demonstrated its sports-event contracts qualify as "swaps" — a type of financial derivative regulated exclusively by the Commodity Futures Trading Commission — and therefore could not claim federal preemption over state gambling rules.
"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 in its opinion.
The court went further, adding that even if the contracts were considered swaps, the Commodity Exchange Act would not expressly or impliedly preempt Ohio's or Tennessee's gambling statutes.
At the center of the dispute is a fundamental disagreement over classification. Kalshi and other prediction market platforms contend that all event contracts are swaps subject to federal oversight. States argue that sports-related offerings are, in practice, sports bets — and therefore subject to local gambling regulation and its associated tax obligations.
The ruling overturns a Tennessee federal district court decision that had sided with Kalshi, while affirming an Ohio district court ruling that had favored the states.
Tennessee Attorney General Jonathan Skrmetti welcomed the outcome. "Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed," Skrmetti 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," he added.
Kalshi and the CFTC did not immediately respond to requests for comment.
Friday's decision is the second appellate ruling to go against the industry in recent weeks. The 9th U.S. Circuit Court of Appeals ruled last month that Nevada has the right to regulate sports-related event contracts, finding they constitute sports bets rather than swaps.
Not all circuits have landed in the same place. The 3rd U.S. Circuit Court of Appeals ruled in April that the CFTC holds exclusive jurisdiction over all swaps regardless of contract type — a decision favorable to platforms. New Jersey, which lost that case, filed a petition to the U.S. Supreme Court earlier this month appealing that outcome.
The CFTC has separately sued nine states in defense of what it characterizes as its exclusive authority under the Commodity Exchange Act to regulate event contracts.
Whether the Supreme Court will take up the matter now — or wait for additional circuit court rulings to sharpen the conflict — remains unclear. With circuits now divided and two appellate losses for the industry logged in quick succession, the pressure for high-court intervention is building, signaling that the legal architecture governing prediction markets remains deeply unsettled.