Kalshi’s sports-related prediction contracts are not federally regulated swaps and can instead be subject to state gaming laws, a Sixth Circuit Court of Appeals panel ruled Friday.
The three-judge panel found that the contracts do not meet the definition of swaps under federal law, rejecting Kalshi’s argument that they should fall under the oversight of the Commodity Futures Trading Commission (CFTC).
The decision is another major development in the legal dispute between prediction market companies and state regulators. With federal appeals courts reaching different conclusions over the regulatory status of these markets, the issue could eventually require a decision from the U.S. Supreme Court.
The Sixth Circuit case involved two lawsuits Kalshi brought against regulators in Ohio and Tennessee. Kalshi sought injunctions preventing the states from pursuing enforcement actions related to its sports contracts. An Ohio federal court denied the request, while a Tennessee federal court previously granted Kalshi’s motion.
State regulators have increasingly challenged sports prediction markets since their rapid expansion following the 2024 election. They argue that these platforms compete with state-licensed gambling businesses by offering contracts tied to sporting events that resemble products available through sportsbooks and betting apps.
Taxation is another point of contention. States argue that prediction market operators subject to federal oversight do not pay state gambling taxes while competing with businesses regulated at the state level. Regulators have also highlighted differences in minimum-age requirements, noting that prediction markets can accept users at 18 in some cases, while many state gambling operators set the minimum age at 21.
In its ruling, the Sixth Circuit agreed that Kalshi had the right to challenge the states but disagreed with the company’s interpretation of federal commodities law.
The panel examined whether Kalshi’s sports contracts are based on events associated with a potential financial, economic or commercial consequence. It concluded that the contracts do not meet that statutory requirement.
The judges illustrated the distinction with an example involving the New York Giants and the Super Bowl. If the defined event is the Giants winning the Super Bowl, the team’s victory constitutes the event taking place. If the event is defined as the Super Bowl game itself, however, the Giants’ victory is the outcome of that event.
The panel said federal law does not clearly require an event to be defined separately from its outcome. Because the statute does not establish such a restriction, the judges declined to add one themselves.
The ruling adds to an existing split between federal appeals courts. The Third Circuit previously determined that the CFTC has jurisdiction over prediction markets, while the Eighth Circuit ruled that sports-related prediction contracts were not swaps.
The disagreement between the circuits could ultimately lead to Supreme Court review. The Third Circuit case has already been appealed to the Supreme Court, giving the justices an opportunity to address the broader conflict over whether sports prediction contracts should be governed by federal commodities rules or state gambling regulations.
