A Unanimous Blow to Kalshi's Federal Strategy
On Friday, the United States Court of Appeals for the Sixth Circuit delivered a clear setback for prediction-market platform Kalshi. A three-judge panel voted unanimously to reject the company's position that its sports-event contracts fall under the regulatory umbrella of the Commodity Futures Trading Commission (CFTC) as "swaps." In doing so, the court affirmed that the states of Ohio and Tennessee retain the authority to police those contracts under their own gambling statutes. The decision effectively denies Kalshi the federal preemption argument it had leaned on to operate across state lines without complying with local gaming rules.
A Growing Circuit Split Over Prediction-Market Classification
The Sixth Circuit's verdict extends a pattern of conflicting rulings among federal appellate courts. Just last month, the Ninth Circuit issued a finding broadly consistent with the Sixth, also concluding that state regulators could assert jurisdiction over Kalshi-type products. That stands in sharp contrast to an April decision from the Third Circuit, which granted Kalshi a preliminary win in New Jersey. The Third Circuit judge determined that Kalshi was likely to prevail on the argument that federal CFTC authority displaces New Jersey's state-level gambling regulations, and the company's appeal on that front remains pending.
This patchwork of circuit opinions creates genuine legal uncertainty for market participants who trade event-contract products. For traders and brokers who offer or facilitate access to prediction-market instruments, the lack of a single controlling interpretation means compliance obligations can vary dramatically depending on which state a counterparty resides in.
The Supreme Court May Be the Final Arbiter
The divergent rulings across the Third, Sixth, and Ninth Circuits now set the stage for a potential Supreme Court review. According to reporting published earlier this week, a coalition of state legislators has filed an amicus curiae brief asking the nation's highest court to intervene in the dispute between Kalshi and state gaming authorities. The brief urges the justices to settle the overarching question of whether state regulators or the federal CFTC hold primary jurisdiction over prediction-market companies. A definitive ruling at that level would resolve the circuit conflict and establish a uniform national standard.
Implications for the Trading Ecosystem
For the broader derivatives and event-contract trading community, the current legal landscape carries practical risk. Brokers and platform operators that list sports-event or similar prediction products face the possibility of state-level enforcement actions in jurisdictions where their federal-jurisdiction shield has been rejected. Until the Supreme Court—or a further appellate ruling—clarifies the boundary between CFTC-regulated swaps and state-regulated gambling contracts, market participants should expect a continued patchwork of compliance requirements and the potential for new restrictions in additional states. The case underscores how regulatory classification decisions can reshape access, product availability, and operational cost for firms operating at the intersection of prediction markets and traditional derivatives trading.
