Federal Appeals Court Rules Kalshi Prediction Markets Subject to State Gambling Laws

Appeals Court Upholds State Authority

A three-judge panel in the US Court of Appeals for the Sixth Circuit unanimously ruled against Kalshi, a prediction market, and in favor of Ohio and Tennessee. This decision asserts that states can enforce their gambling laws against Kalshi, which had claimed it should only be regulated by the US government.

Wagers Not Defined as 'Swaps'

The court determined that the sports wagers offered by Kalshi do not meet the legal definition of 'swaps,' a category over which the US Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction. Judge Julia Smith Gibbons stated that Kalshi failed to demonstrate its contracts satisfy the statutory definition of a swap.

State Laws Not Preempted

The ruling further clarified that even if Kalshi's sports-event contracts were considered swaps, the Commodity Exchange Act (CEA) does not expressly or implicitly preempt Ohio’s or Tennessee’s gambling laws. This means states retain the authority to regulate such activities regardless of federal oversight on swaps.

Legal Background and Implications

Kalshi initiated lawsuits against Ohio and Tennessee after state gambling regulators indicated plans for enforcement actions. The appeals court's decision upheld an Ohio district court ruling against Kalshi and overturned a Tennessee district court order that had previously favored Kalshi. This ruling sets a precedent for other states seeking to regulate Kalshi's operations.

Operating Without State Compliance

Kalshi offers sports betting across the US without obtaining state gambling licenses or paying state gambling taxes. This includes operating in states where sports gambling is entirely illegal or where specific restrictions on betting are not followed by Kalshi. The court's decision reinforces states' ability to challenge these practices.