A three-judge panel of the Sixth Circuit Court of Appeals concluded that the sports-event contracts offered by prediction-market platform Kalshi do not meet the statutory definition of a swap. While the judges recognized that the contracts are contingent on the occurrence of a sporting event, they found that the language of the governing statute does not require the event to have a broader financial or commercial impact. The panel illustrated this point with a hypothetical involving the New York Giants winning a Super Bowl, emphasizing that the definition hinges on how the “event” is framed.
State versus federal oversight
The ruling means that Kalshi’s sports contracts are subject to state gaming statutes rather than the Commodity Futures Trading Commission’s (CFTC) regulatory regime. State authorities have argued that such contracts compete directly with state-licensed gambling platforms, especially because they are accessible to users as young as 18, compared with the typical gambling age of 21. Additionally, states contend that federally regulated platforms avoid state taxes while vying with state-run gambling services.
Prospects for a Supreme Court showdown
The Sixth Circuit’s finding adds to a growing circuit split: the Third Circuit has held that the CFTC does have authority over prediction markets, while the Eighth Circuit, like the Sixth, determined that sports-related contracts are not swaps. This divergence creates a strong incentive for the United States Supreme Court to intervene and resolve the conflicting interpretations of federal law.
Why it matters
The decision underscores the regulatory uncertainty surrounding prediction markets that blend elements of finance and gambling. By placing Kalshi’s sports products under state jurisdiction, the ruling could prompt a wave of state enforcement actions and shape how prediction-market operators structure their offerings. The split among federal appellate courts also signals that a definitive ruling from the Supreme Court may be on the horizon, potentially reshaping the legal landscape for the entire industry.
