The US Court of Appeals for the Sixth Circuit ruled unanimously on Friday that Ohio and Tennessee can enforce their gambling laws against Kalshi, the federally regulated prediction market. The three-judge panel found that Kalshi’s sports event contracts are not swaps under the Commodity Exchange Act, and that even if they were, federal law would not override the two states’ gambling rules. Kalshi has now lost two of the three appeals decided on the question.
The panel read the Dodd-Frank definition of a swap narrowly, saying it requires an event with inherent financial consequences. The knock-on effects of a sports result on sponsors or advertisers were, in its view, too attenuated, indirect and speculative to count. The judges also noted that Kalshi had conceded in earlier litigation that such contracts have no inherent economic significance.
The decision deepens an existing split. The Ninth Circuit went against Kalshi over Nevada in August, while the Third Circuit sided with it 2-1 over New Jersey in April. A Fourth Circuit case over Maryland is still pending, and New Jersey’s attorney general asked the Supreme Court to take up the issue on 2 September. The money involved is not small: Kalshi recorded $38.67 billion in trading volume in August, according to The Block.
Kalshi disputes the ruling and expects further review. What the courts have not settled is the question underneath all of this, which is whether federal approval of an exchange extends to everything listed on it. Until the Supreme Court decides whether to hear the case, the same contract can be a regulated derivative in New Jersey and an unlicensed bet in Ohio, and a platform built to trade nationally has to operate state by state.
