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Kalshi suffered another setback in its legal fight with state gambling regulators after a federal appeals court ruled that Ohio and Tennessee can enforce their sports betting laws against the prediction market operator.
A unanimous three-judge panel of the U.S. Court of Appeals for the Sixth Circuit rejected Kalshi’s argument that its sports event contracts are federally regulated financial products that only the Commodity Futures Trading Commission can oversee.
In the consolidated Ohio and Tennessee decision, the court said Kalshi had not shown that the contracts qualify as “swaps” under the federal Commodity Exchange Act. It also ruled that, even if the contracts were swaps, federal law does not prevent Ohio or Tennessee from applying their gambling laws.
Court says sports contracts on Kalshi and bets are ‘virtually indistinguishable’
While Kalshi maintains that its sports contracts should be treated like swaps, a type of financial derivative, the court argued that sports event contracts do not meet the definition of swaps. Derivatives involve contracts between at least two parties with the value based on an underlying asset.
The Sixth Circuit said a qualifying swap must be tied to an event with an inherent financial, economic or commercial consequence and ruled that sports outcomes do not meet that standard because any financial effect is usually indirect.
The court also noted that “Kalshi has marketed itself as ‘the first nationwide legal sports betting platform.’” Judge Julia Smith Gibbons, writing for the panel, held that the company offers products that are “virtually indistinguishable” sports bets.
What the ruling changed in Ohio and Tennessee
In Ohio, a lower federal court had already refused to block state regulators from acting against Kalshi, supporting Ohio Casino Control Commission’s claim that Kalshi was operating an unlicensed sportsbook in violation of Ohio civil and criminal law. The Sixth Circuit upheld that decision, so Ohio can continue enforcing its gambling laws while the case moves forward.
In Tennessee, Kalshi had won a preliminary injunction that temporarily stopped state enforcement. The appeals court threw out that injunction and sent the case back to the lower court. Tennessee officials are therefore no longer blocked by that order.
More court battles ahead
The Ninth Circuit ruled in August that Nevada could enforce its gaming laws against Kalshi, while the Third Circuit previously sided with Kalshi in a similar New Jersey case.
A related appeal is also pending before the Fourth Circuit in Maryland, where judges heard arguments in May over whether federal commodities law prevents the state from applying its gambling laws to Kalshi’s sports event contracts.
The legal fights over sports event contracts continue nationwide, with courts deciding whether these products fall primarily under federal commodities law or state gambling laws.
