A federal appeals court ruled on Friday that states can regulate prediction market platforms such as Kalshi the same way they regulate gambling. This adds another nuance to the legal fight over sports-related event contracts. The 6th U.S. Circuit Court of Appeals sided with Ohio and Tennessee, rejecting Kalshi’s claim that its sports event contracts are shielded from state gambling laws by federal regulation. The decision adds to an escalating split among federal appeals courts over whether prediction markets fall under federal supervision through the Commodity Futures Trading Commission (CFTC) or be regulated by individual states.

Why The 6th Circuit Said Kalshi’s Contracts Are Not Swaps

The ruling resolved consolidated appeals from Ohio and Tennessee, both of which sought to assert authority over prediction market activity within their jurisdictions. The court found that Kalshi had failed to establish that its sports event contracts qualify as swaps regulated under the CFTC framework. That finding weakened Kalshi’s argument that federal supervision should restrict states from treating its sports predictor contracts as gambling. Circuit Judge Julia Smith Gibbons wrote the opinion for the panel. 

The court also stated that even if Kalshi had given adequate information that its sports event contracts were swaps, the Commodity Exchange Act would still not override state gambling laws. Kalshi had argued that federal law prevented Ohio and Tennessee from governing its platform as gambling. The 6th Circuit denied that position, leaving both states free to enforce their gambling laws. The decision represented another setback for Kalshi, which continues to lose ground in multiple states. 

At issue are sports event contracts, which let users trade on the outcome of a game. The 6th Circuit ruling also follows a similar determination by the 9th Circuit Court of Appeals the month before. Altogether, the decisions have bolstered the position of states seeking to regulate prediction markets under gambling laws. The federal courts have not reached a final position on the issue.

What The Kalshi Split Means For A Supreme Court Case

The 3rd Circuit went the other way in April, in a case brought by New Jersey. The 3rd Circuit Court of Appeals allowed Kalshi to continue operating in the state while it appealed the underlying determination. The Court found that Kalshi was likely to succeed in its argument that federal law takes priority over New Jersey’s effort to regulate the platform. The distinction has created a divide among federal appeals courts. The 6th and the 9th circuits supported the state’s ability to regulate prediction markets, while the 3rd Circuit reached the opposite conclusion in the New Jersey case. 

That rift could eventually bring the issue to the U.S. Supreme Court. Prior this month, New Jersey asked the justices to determine how prediction markets should be regulated. The Supreme Court receives thousands of petitions each year, but conflicts between federal appeals courts make review more likely because different jurisdictions may otherwise apply different standards. The wider dispute focuses on whether prediction market platforms should be regulated primarily at the federal level, or whether individual states can categorize and regulate their services as gambling under state law. 

States continue to  challenge Kalshi and other prediction market platforms seeking to maintain regulation authority over event-based trading services. There are currently 20 states involved in active litigation over whether prediction markets can be regulated by states. The dispute has also garnered attention from federal policymakers. President Trump has supported the growth of prediction markets and backed exclusive CFTC jurisdiction over the platform. At the state level, opposition has been on the toes. 

In July, 44 states signed a letter to the CFTC arguing that the agency does not have authority to regulate contracts tied to sporting events. As litigation continues across different regions, the competing court decisions leave the central regulation question unsolved: whether sports-related prediction markets should operate primarily under federal commodity regulation or remain under state gambling laws.