The 6th US Circuit Court of Appeals ruled against prediction market Kalshi, determining that Ohio and Tennessee retain authority to regulate its sports-event contracts under their respective state gambling laws. A three-judge panel unanimously found that Kalshi failed to demonstrate these contracts qualify as "swaps" subject to the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). This decision aligns with a recent finding by the 9th Circuit Court of Appeals but contradicts an April ruling by the 3rd Circuit, which allowed Kalshi to continue operating in New Jersey while its appeal proceeds. The conflicting circuit court decisions have established a potential Supreme Court case regarding federal preemption versus state regulatory power.
State lawmakers recently filed an amicus brief urging the Supreme Court to intervene in the dispute between Kalshi and state gaming authorities. The high court’s involvement would likely resolve the critical question of whether state or federal agencies hold jurisdiction over prediction market companies. The legal battle centers on whether federal commodity law supersedes state gambling regulations, a distinction that determines the operational framework for platforms offering event-based financial instruments.
This ruling reinforces the viability of state-level enforcement against prediction markets, challenging the industry’s reliance on CFTC preemption arguments. By rejecting the classification of sports-event contracts as swaps, the 6th Circuit has narrowed the scope of federal protection for these products, potentially exposing operators to varied state licensing requirements and compliance burdens. The divergence from the 3rd Circuit’s earlier stance creates immediate legal uncertainty for firms operating across multiple jurisdictions, forcing them to navigate a patchwork of regulatory expectations rather than a unified federal standard.
The prospect of Supreme Court review introduces significant systemic risk to the sector’s current growth trajectory. If the high court sides with the states, it could fundamentally alter the business model of prediction markets, requiring extensive restructuring of product offerings to comply with local gambling statutes. Conversely, a reversal would validate the federal-first approach, but the interim period of conflicting precedents may deter institutional capital and complicate custody and infrastructure investments until jurisdictional clarity is achieved.
