A federal appeals court in the US has ruled against prediction market operator Kalshi, holding that Ohio and Tennessee can regulate its event contracts under their state gambling laws.
The decision by the 6th US Circuit Court of Appeals in Cincinnati adds to a growing split among federal appeals courts over whether prediction markets should be regulated by state authorities or the federal Commodity Futures Trading Commission (CFTC). The split could eventually lead the US Supreme Court to resolve the issue.
Kalshi said it does not expect the ruling to survive further legal review. Its spokesperson Dani Lever said: “The ruling shows exactly why a state-by-state patchwork doesn’t work,” adding, “Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules.”
Prediction markets are widely known for allowing people to wager on sports outcomes. They also offer contracts linked to elections, weather and cultural events such as the Oscars.
Circuit Judge Julia Smith Gibbons, writing for a unanimous 3-judge panel, said Kalshi had not shown that its sports event contracts were “swaps” that should be regulated exclusively by the CFTC. She also ruled that the federal Commodity Exchange Act did not override Ohio’s or Tennessee’s gambling laws.
Several states, including Ohio and Tennessee, have moved to restrict prediction markets such as Kalshi and Polymarket. This has created a dispute involving Republican President Donald Trump’s administration and the CFTC.
The 9th Circuit in San Francisco ruled last month that Kalshi’s event contracts are subject to Nevada’s gambling laws. In April, the 3rd Circuit in Philadelphia ruled that Kalshi’s contracts are not subject to New Jersey’s gambling laws. New Jersey has asked the Supreme Court to overturn that decision.
Gibbons said “swaps” generally refer to financial measures, indices and instruments used to hedge risks, rather than gaming-related contracts. She also said gambling regulation “lies at the heart of the state’s police power” and that Congress has given states primary responsibility for deciding which forms of gambling can operate within their borders.
The judge said the Commodity Exchange Act’s “core purpose” was to protect the national interest by providing a way to manage and assume risk and obtain pricing information.
“It is, therefore, difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game — or that a 30-leg parlay will hit — would serve (to) advance those goals,” Gibbons wrote.
Friday’s ruling overturned a preliminary injunction issued by a Tennessee federal judge against enforcement of the state’s gambling laws. It also upheld the denial of a similar injunction against Ohio by a federal judge.
Tennessee Attorney General Jonathan Skrmetti called the ruling a “great win” for the state. “Sports wagering is heavily regulated because it can do a lot of harm, and I’m glad we thwarted Kalshi’s efforts to remove every safeguard and put Tennessee sports bettors at risk,” he said.
The office of Ohio Attorney General Andy Wilson did not immediately respond to requests for comment.
Gibbons was appointed to the appeals court by Republican President George W. Bush. The panel also included Circuit Judges Eric Clay and Rachel Bloomekatz, appointed by Democratic Presidents Bill Clinton and Joe Biden, respectively.
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