Kalshi Loses Key Appeal as Circuit Split Deepens
TREE NEWS reports: Prediction market platform Kalshi suffered a significant regulatory setback last week when the U.S. Sixth Circuit Court of Appeals ruled that Ohio and Tennessee have the authority to regulate its sports event contracts under state gambling laws. A unanimous three-judge panel determined that Kalshi failed to demonstrate its sports contracts qualify as “swaps” subject to exclusive Commodity Futures Trading Commission (CFTC) oversight.
The ruling aligns with a similar decision from the Ninth Circuit last month, but conflicts sharply with an April decision from the Third Circuit that permitted Kalshi to operate in New Jersey. This growing divergence among federal appellate courts has created the conditions for potential Supreme Court intervention, with state legislators already filing briefs urging the high court to clarify the jurisdictional boundaries of prediction markets.
The Core Legal Question: What Is a ‘Swap’?
At the heart of the dispute lies a deceptively simple question: do event contracts tied to sports outcomes constitute financial derivatives under federal commodities law, or are they effectively wagers subject to state gambling regulation?
Kalshi has argued that its contracts are federally regulated swaps, which would preempt state oversight under the Commodity Exchange Act. The Sixth Circuit rejected this interpretation, finding that Kalshi’s offerings more closely resemble traditional sports betting than financial instruments designed for hedging or risk transfer.
- Third Circuit (April): Ruled in Kalshi’s favor, allowing New Jersey operations
- Ninth Circuit (August): Sided with state regulators, restricting Kalshi’s activities
- Sixth Circuit (September): Upheld Ohio and Tennessee’s regulatory authority
Implications for the Prediction Market Industry
The circuit split carries profound implications not just for Kalshi but for the entire prediction market sector, including competitors like Polymarket and emerging blockchain-based platforms. A Supreme Court ruling could establish a definitive framework determining whether prediction markets operate under federal or state jurisdiction—a decision worth billions in potential market access.
For crypto-native prediction platforms, the stakes are particularly high. Many operate on decentralized infrastructure that theoretically transcends state boundaries, yet they remain vulnerable to enforcement actions if states retain regulatory authority over event contracts.
What Comes Next
Kalshi is expected to appeal the Sixth Circuit decision, potentially setting up a Supreme Court case as early as next term. The CFTC, which has taken an increasingly aggressive stance on prediction markets under current leadership, may weigh in on the side of federal preemption—though the agency’s position has been notably inconsistent.
Meanwhile, states are likely to continue pursuing enforcement actions against platforms operating within their borders. The outcome will determine whether prediction markets evolve into a nationally integrated financial ecosystem or remain a fragmented patchwork of state-by-state compliance regimes.
