Another appeals court rules against prediction market provider Kalshi, says sports contracts are subject to state regulations
A Sixth Circuit Court of Appeals panel ruled that prediction markets' sports-related events contracts are not swaps, and therefore aren't subject to federal regulatory oversight.
A panel of judges on the Sixth Circuit Court of Appeals ruled Friday that prediction market provider Kalshi's sports-related events contracts are not swaps, and therefore are subject to state gaming regulations rather than the federal Commodity Futures Trading Commission's rules.
It's the latest appeals court to weigh in on the ongoing legal fight between states and prediction market providers, and the ruling creates further reason for the U.S. Supreme Court to ultimately weigh in on the matter.
Friday's ruling addresses two cases brought by Kalshi against regulators in Ohio and Tennessee. The platform wanted to secure injunctions blocking the states from suing it, and while an Ohio federal court denied Kalshi's motion, a Tennessee federal court granted it.
States have tried to wrangle prediction markets offering sports-related contracts under their regulatory frameworks since they started taking off after the 2024 election, arguing that these markets are competing with state gambling platforms and offering identical products to gambling sites and apps. For many states, the issue is that federally regulated platforms do not pay state taxes, while still competing with state-regulated platforms. Another major point of contention is the fact that prediction markets often offer their products to people as young as 18, rather than 21, like most state gambling operators.
In Friday's ruling, the three-judge panel said it agreed that Kalshi did have the right to bring a case, but disagreed that the products in question were federally regulated swaps.
"While we agree with Kalshi that its sports-event contracts are conditioned on the occurrence of 'event[s],' we conclude that Kalshi’s contracts do not depend on events that are 'associated with a potential financial, economic, or commercial consequence' within the meaning of the statute," the ruling said.
The ruling used the New York Giants winning a Super Bowl as an example case, saying the result could depend on how the "event" in question is defined. If the event is the Giants winning, then that victory would be described as "that event having occurred."
On the other hand, if the event is actually the game being played, then the Giants winning is the outcome.
"The proper terminology, then, seems to turn on how the event itself is defined," the ruling said. "And because nothing in the statutory text provides a clear indication that the event must be defined to exclude outcomes, we decline to read such a limitation into the statutory definition ourselves."
The Third Circuit Court of Appeals and Eighth Circuit Court of Appeals had previously ruled on prediction markets, with the Third Circuit panel ruling that the CFTC had jurisdiction over prediction markets and the Eighth Circuit ruling that the sports-related contracts were not swaps. It's this type of circuit split that should lead to a Supreme Court case, and the Third Circuit case has already been appealed to the high court.
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Kalshi's second appellate defeat signals a structural vulnerability in prediction markets' regulatory strategy. By ruling sports contracts fall outside swap classification, the Sixth Circuit echoed the Fifth Circuit's earlier skepticism toward federal CFTC preemption arguments—the cornerstone of Kalshi's legal defense. This creates circuit fragmentation that likely invites Supreme Court review, but more immediately means state gaming and gambling regulators retain jurisdiction over sports-linked binary options, a $multi-billion TAM Kalshi had positioned as federally-cleared.
The ruling reframes prediction markets as state-regulated instruments rather than commodity derivatives, aligning them closer to DraftKings/FanDuel's sports betting model than to traditional futures. This precedent could force other prediction market platforms (Polymarket, others operating offshore) toward either: (1) state-by-state licensing infrastructure mirroring sportsbooks, or (2) persistent regulatory arbitrage. For DeFi broadly, it underscores how courts interpret 'commodities' conservatively—precedent that may constrain other on-chain financial instruments claiming federal exemptions.