A federal appeals panel ruled that Ohio and Tennessee retain the power to regulate Kalshi’s sports-event contracts, marking another setback for the prediction-market platform and heightening the dispute over whether state or federal agencies should oversee such products.
Court Decision
The 6th U.S. Circuit Court of Appeals issued a unanimous opinion rejecting Kalshi’s claim that its contracts fall under the Commodity Futures Trading Commission’s jurisdiction. The judges concluded that the platform had not demonstrated that its sports-event contracts qualify as “swaps,” a classification that would place them under federal oversight. Instead, the court affirmed that the contracts can be treated as gambling activities subject to state regulation.
Legal Background
Kalshi has been embroiled in a series of appellate battles across the country. Earlier this year, the 9th Circuit reached a comparable conclusion, siding with state authorities that sought to apply local gambling statutes to the platform’s offerings. By contrast, an April ruling from the 3rd Circuit had been more favorable to Kalshi, suggesting that federal law might pre-empt New Jersey’s regulatory approach and allowing the company to continue operating there while the appeal proceeded.
Potential Supreme Court Involvement
The divergent outcomes among the circuits have prompted a group of state lawmakers to file an amicus brief with the Supreme Court. In the brief, the legislators urged the nation’s highest court to resolve the jurisdictional question, seeking clarity on whether state gambling regulators or the CFTC should have ultimate authority over prediction-market platforms like Kalshi.
Implications for Prediction Markets
The latest ruling reinforces the notion that states can treat certain prediction-market contracts as gambling products, potentially limiting the ability of platforms to rely on federal exemptions. If the Supreme Court decides to hear the case, its decision could set a nationwide precedent, either cementing state control or affirming federal pre-emption for a broader class of contracts.
Why it matters
The outcome of this legal saga will shape the regulatory landscape for emerging prediction-market services, influencing where and how they can operate in the United States. A definitive Supreme Court ruling could either open the door for broader federal oversight, providing a uniform framework, or affirm the patchwork of state regulations that currently governs the sector.
