A federal appeals court has dealt Kalshi a second major appellate defeat, ruling that the prediction market operator failed to show its sports event contracts qualify as 'swaps' under the Commodity Exchange Act. The U.S. Court of Appeals for the Sixth Circuit on Friday affirmed an Ohio federal court's refusal to grant Kalshi a preliminary injunction and vacated a Tennessee court order that had blocked state enforcement, sending both cases back to lower courts.
The panel found that paying out according to a sports result does not depend on an event 'associated with a potential financial, economic, or commercial consequence,' as required by the statutory swap definition. It also held that the Commodity Exchange Act neither expressly nor implicitly preempts Ohio and Tennessee from applying their gambling laws, meaning state enforcement can proceed even if the contracts were classified differently.
The ruling sharpens a federal appellate split. In April, the Third Circuit ruled 2-1 for Kalshi in its case against New Jersey, while the Ninth Circuit ruled unanimously against Kalshi in its Nevada dispute in August. New Jersey regulators filed a Supreme Court petition on Sept. 2, docketed as No. 26-299, with Kalshi's response due Nov. 9. The Eighth Circuit has not yet ruled on the core question as Iowa litigation moves forward.
For prediction markets, the decision reinforces a state-by-state compliance model. Kalshi reported $37.17 billion in August trading volume, helped by sports contracts during the World Cup, and the CFTC has been developing its own event-contract framework with proposed rules released in June. If state gambling laws remain applicable, operators may face licensing, age restrictions, advertising limits, taxes and outright bans that vary by state, undermining a single federal derivatives framework.
