Prediction market platform Kalshi has suffered a significant legal defeat following a federal appeals court ruling that allows the states of Ohio and Tennessee to regulate sports-event contracts under their respective state gambling laws.
The unanimous decision was handed down on Friday by a three-judge panel on the 6th US Circuit Court of Appeals. The court ruled directly against Kalshi, finding that the prediction market failed to adequately demonstrate that its sports-event financial contracts qualify as "swaps" that fall exclusively under the regulatory jurisdiction of the Commodity Futures Trading Commission (CFTC).
This latest appellate court decision adds to an increasingly complex and fractured legal landscape surrounding the regulation of event-based financial contracts in the United States. The 6th Circuit ruling closely mirrors a similar finding issued last month by the 9th Circuit Court of Appeals, which also upheld the authority of state-level gaming regulators to oversee these types of speculative contracts.
However, these recent setbacks for Kalshi stand in stark contrast to an earlier judicial victory secured by the company. In April, the 3rd Circuit Court of Appeals issued a ruling that allowed Kalshi to continue doing business in New Jersey while its broader legal appeals process proceeded through the courts. That April decision concluded that Kalshi was likely to succeed on the merits of its underlying legal argument—specifically, that federal law preempts New Jersey’s state-level gambling regulations regarding these financial instruments.
The widening divergence in how different federal circuits are interpreting federal preemption and state gaming authorities’ powers has set the stage for what many legal experts believe will inevitably become a landmark Supreme Court case. The core dispute centers on a fundamental jurisdictional question: whether federally regulated financial derivatives markets like Kalshi are subject to federal oversight exclusively, or whether state gaming and gambling authorities retain the sovereign right to restrict or regulate event contracts that resemble sports betting within their borders.
The pressure on the nation’s highest court to intervene has intensified in recent weeks. Reports emerged on Wednesday that a coalition of state lawmakers formally filed an amicus curiae brief with the United States Supreme Court. In their filing, the lawmakers urged the high court to step into the ongoing legal battles between prediction market companies and state gaming authorities to provide definitive clarity and resolve the growing regulatory uncertainty once and for all.
The outcome of this jurisdictional tug-of-war carries profound implications not only for Kalshi and competing prediction markets, but also for the broader intersection of federal financial regulation and state-level gaming enforcement. As federal appellate courts continue to issue conflicting decisions, the ultimate resolution of whether state laws can curtail federally supervised derivatives markets rests increasingly on the actions of the Supreme Court.
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