Kalshi Faces Another Appeals Court Loss Over State Regulation of Sports Contracts

A three-judge panel of the Sixth Circuit Court of Appeals ruled Friday that Kalshi’s sports-related event contracts do not qualify as swaps, meaning they fall under state gaming regulations rather than federal oversight by the Commodity Futures Trading Commission (CFTC).

The decision is the latest development in the legal battle between prediction market operators and states seeking to regulate sports-related contracts. The growing disagreement among federal appeals courts could ultimately give the U.S. Supreme Court another reason to consider the issue.

The Sixth Circuit ruling involved two lawsuits Kalshi filed against regulators in Ohio and Tennessee. Kalshi sought court orders preventing the states from pursuing enforcement actions against its sports contracts. An Ohio federal court rejected the company’s request, while a Tennessee federal court granted its motion.

States have increasingly challenged prediction markets offering sports contracts since the sector expanded following the 2024 U.S. election. State regulators argue that these platforms compete directly with licensed gambling operators while providing products similar to those offered by sportsbooks and betting apps.

A key issue for states is that federally regulated prediction markets generally do not pay state gambling taxes while competing with businesses operating under state gambling laws. Age requirements have also become a point of disagreement, as prediction markets may allow customers to participate at 18, while many state gambling operators require customers to be at least 21.

In Friday’s decision, the Sixth Circuit panel agreed that Kalshi had standing to pursue its legal challenge but rejected the company’s argument that its sports contracts should be treated as federally regulated swaps.

The judges focused on the statutory definition of an event contract and whether the underlying event involves a potential financial, economic or commercial consequence. The court concluded that Kalshi’s sports contracts did not meet that requirement under the relevant federal law.

The panel illustrated the issue using a hypothetical involving the New York Giants winning the Super Bowl. If the contract defines the event as the Giants winning the championship, the victory itself constitutes the occurrence of the event.

But if the underlying event is defined as the football game being played, the Giants’ victory represents the outcome rather than the event itself.

The court said the statutory language does not clearly require an event to be defined in a way that excludes outcomes. As a result, the judges declined to impose such a restriction on the definition themselves.

The ruling adds to an existing split among federal appeals courts over the regulatory status of prediction markets. The Third Circuit previously found that the CFTC has jurisdiction over prediction markets, while the Eighth Circuit concluded that sports-related contracts offered by prediction markets were not swaps.

That disagreement among the circuits could increase the likelihood of Supreme Court review. The Third Circuit decision has already been appealed to the Supreme Court, leaving the high court with an opportunity to address the broader dispute over whether sports prediction contracts should fall under federal commodities regulation or state gambling laws.

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