Kalshi Sports Contracts: Sixth Circuit Ruling Explained

A federal appeals court ruled Kalshi's sports contracts aren't swaps, boosting state gambling regulators and raising odds of Supreme Court review.

The Sixth US Circuit Court of Appeals dealt prediction market Kalshi a significant legal setback on Friday, ruling that its Kalshi sports contracts are not swaps and can be regulated under Ohio and Tennessee gambling laws. The unanimous decision by a three-judge panel deepens a split among federal appeals courts and makes it more likely the US Supreme Court will soon decide who has jurisdiction over prediction markets.

What happened

The Sixth Circuit panel sided with Ohio and Tennessee regulators, finding that Kalshi failed to show its sports-event contracts qualify as swaps under the Commodity Exchange Act. The ruling covered two separate cases Kalshi brought against state regulators. In Ohio, a federal court had denied Kalshi's request for an injunction; in Tennessee, a federal court had granted one. The Sixth Circuit's decision reverses the outcome Kalshi wanted in both instances, at least for now.

The panel agreed that Kalshi had the right to bring its case, but disagreed on the core question of whether the products are federally regulated swaps. The judges reasoned that while Kalshi sports contracts are conditioned on events occurring, they do not depend on events tied to a potential financial, economic, or commercial consequence as the statute requires. The panel also used a hypothetical example—the New York Giants winning a Super Bowl—to illustrate how the definition of the underlying event can change the legal outcome. Because the statutory text does not clearly require excluding such outcomes, the court declined to read that limitation into the definition.

Why it matters

This ruling is the latest development in a widening circuit split over prediction market jurisdiction. Last month, the Ninth Circuit Court of Appeals ruled similarly against Kalshi, according to Cointelegraph. The Eighth Circuit had previously found that sports-related contracts were not swaps. On the other side, the Third Circuit Court of Appeals ruled in April that Kalshi was likely to succeed on federal preemption of New Jersey regulations and allowed the company to do business in New Jersey during its appeal. Notably, sources differ on the exact details of the Third Circuit's decision—CoinDesk reports that the Third Circuit ruled the CFTC had jurisdiction over prediction markets, while Cointelegraph says the court allowed Kalshi to operate in New Jersey during the appeal. Those discrepancies highlight how fluid this legal area remains.

For everyday crypto investors, the stakes go beyond Kalshi itself. Prediction markets offering sports-related contracts grew rapidly after the 2024 election, and states have increasingly sought to regulate them under their own gambling frameworks. States argue these platforms compete directly with state gambling operators, offer identical products, do not pay state taxes, and often allow participants as young as 18, compared to 21 for most state-licensed gambling. If state regulators prevail, prediction markets could face a patchwork of rules that vary dramatically by state, potentially limiting access for users and raising compliance costs for platforms.

The circuit split also increases the likelihood that the Supreme Court will take up the question of whether state or federal authorities have jurisdiction over prediction markets. The Third Circuit case has already been appealed to the Supreme Court, and state lawmakers have filed an amicus brief urging the justices to weigh in. A Supreme Court decision would provide clarity that the current patchwork of appellate rulings cannot.

Market reaction

No live market data was provided in the research notes, so we cannot quote specific prices for Kalshi-related assets or tokens. However, the ruling is likely to be watched closely by platforms offering event-based contracts and by crypto exchanges that list related products. Traders should monitor how prediction market volumes and open interest respond in the coming days, as legal uncertainty often reduces participation.

What to watch next

Supreme Court action: Whether the justices agree to hear the Third Circuit appeal or any other prediction market case. A grant of certiorari would be a major signal.
Other circuit rulings: Any additional appellate decisions that could reinforce or contradict the Sixth Circuit's stance.
State legislative activity: New bills or enforcement actions targeting prediction markets, especially in states that have already taken a hard line.
Kalshi's response: Whether Kalshi seeks a rehearing or adjusts its product offerings in Ohio and Tennessee.
CFTC positioning: Any statements or rulemaking from the Commodity Futures Trading Commission on the scope of its jurisdiction.

FAQ

What is the Sixth Circuit's ruling on Kalshi sports contracts?

The Sixth US Circuit Court of Appeals ruled that Kalshi's sports-event contracts are not swaps under federal law and can be regulated by Ohio and Tennessee under their state gambling laws. The three-judge panel sided unanimously with the states.

Why did the Sixth Circuit rule against Kalshi?

The panel found that Kalshi's contracts are conditioned on events occurring.

But they do not depend on events associated with a potential financial, economic, or commercial consequence.

This is required by the statutory definition of a swap.

How does this affect prediction market regulation in the US?

The ruling deepens a split among federal appeals courts on whether state or federal authorities have jurisdiction over prediction markets. It increases the likelihood that the Supreme Court will take up the issue, which could ultimately determine how prediction markets operate across the country.

Kalshi Sports Contracts Lose Key Appeal: What It Means