Sixth Circuit Upholds State Gambling Authority Over Kalshi Contracts
The 6th U.S. Circuit Court of Appeals delivered a significant ruling on Friday, confirming that individual states retain the power to regulate sports-related event contracts sold on prediction-market platforms. In a unanimous opinion, the three-judge panel held that both Ohio and Tennessee are entitled to enforce their respective gambling statutes against Kalshi's sports offerings.
The court's reasoning struck at the heart of the industry's regulatory strategy. The panel stated that Kalshi had not demonstrated its sports-event contracts meet the statutory definition of a "swap" under the Commodity Exchange Act, and therefore do not fall within the Commodity Futures Trading Commission's exclusive jurisdiction. The judges went further, noting that even if the contracts qualified as swaps, the CEA neither expressly nor impliedly preempts the gambling laws of Ohio or Tennessee.
The decision reverses a prior federal district-court ruling in Tennessee that had favored Kalshi, while simultaneously reinforcing a separate district-court decision in Ohio that had sided with the states.
The Federal-versus-State Jurisdiction Fight Explained
At the center of the dispute is a fundamental question of who gets to police prediction markets: Washington or the states. Kalshi and fellow platforms contend that every event contract they list constitutes a swap—a category of financial derivative that, by statute, is overseen exclusively by the CFTC. Under that framework, state gambling regulations would be legally irrelevant.
State attorneys general take the opposite view. They argue that when the underlying event is a sporting contest, the product is functionally a sports bet, and the full apparatus of state sports-betting law—licensing, taxation, consumer-protection safeguards—applies accordingly.
The conflict has escalated into a multi-front legal war. The CFTC itself has filed suit against nine states, asserting that the Commodity Exchange Act grants it sole authority to regulate event contracts nationwide. Meanwhile, platforms have brought their own actions to block states from enforcing local gambling statutes, framing themselves as federally regulated financial exchanges rather than bookmakers.
For traders and retail participants, the practical stakes are considerable. A state-by-state regulatory patchwork could mean different tax treatments, different eligibility rules, and different levels of consumer protection depending on where a user is physically located when placing a contract.
Reactions from State and Industry Sides
Tennessee Attorney General Jonathan Skrmetti issued a pointed statement after the ruling. He characterized Kalshi's strategy as an attempt to bypass the rules and taxes attached to sports gambling in the state, and described the court's decision as a success for public safety. Skrmetti emphasized that sports wagering is heavily regulated because of the potential for harm, and expressed relief that Kalshi's push to strip away those safeguards had been rebuffed.
Kalshi's response was sharply critical. Spokesperson Dani Lever said the platform disagreed with the outcome and framed the ruling as evidence that a fragmented, state-by-state approach is dysfunctional. Lever pointed out that federal courts have reached conflicting conclusions on whether the same contracts are covered by federal law, and that some jurisdictions recognize the genuine economic implications of sports markets while others, in her words, incorrectly deny them. She argued that markets cannot function effectively when the applicable rules shift at every state border, and cited Congress's creation of a single federal regulator with nationwide rules as the intended solution.
The CFTC did not immediately respond to a request for comment, and CNBC also reached out to the Ohio attorney general's office, which had not replied as of publication.
Two Appeals-Level Losses and a Supreme Court Question Looming
The 6th Circuit ruling is the second adverse appeals-court decision for the prediction-markets industry in recent months. Last month, the 9th U.S. Circuit Court of Appeals sided with Nevada, concluding that sports-related event contracts are sports bets rather than swaps. That left the 3rd Circuit as the outlier: in April, that panel ruled against New Jersey, holding that the CFTC possesses the exclusive right to regulate all swaps regardless of the underlying contract type.
New Jersey has since filed a petition asking the U.S. Supreme Court to review the 3rd Circuit decision. It remains uncertain whether the Court will grant certiorari now or will wait for additional circuit rulings on the sports-event-contract question before intervening.
For the broker and trading community, the practical takeaway is one of heightened regulatory risk. Until the Supreme Court—or Congress—provides a definitive answer, participants in prediction markets face a fluid legal environment in which the very permissibility of trading a given contract can depend on state borders and the outcome of pending appeals. Traders who use these platforms as part of a broader portfolio strategy should monitor the docket closely, as the next ruling could reshape the compliance landscape almost overnight.
Disclosure: CNBC, the outlet that first reported the ruling, has a commercial relationship with Kalshi that includes customer-acquisition arrangements and a minority equity investment.
