Prediction Market Kalshi Loses Federal Appeal Over Gambling Regulation

Kalshi suffered another legal setback after the Sixth Circuit Court of Appeals sided with Ohio and Tennessee, determining that the prediction market operates outside federal jurisdiction and must comply with state gambling rules.

What the Court Decided#

In a unanimous decision by a three-judge panel, the court rejected Kalshi's argument that it qualifies as a "swap"—a financial instrument exclusively regulated by the Commodity Futures Trading Commission. Judge Julia Smith Gibbons, writing for the panel, concluded that "Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a 'swap.'" The ruling emphasized that even if the contracts were swaps, the Commodity Exchange Act would not prevent states from applying their own gambling laws.

The Business Reality#

Kalshi offers sports betting across the United States without obtaining state gambling licenses or paying state gambling taxes. The platform operates in jurisdictions where sports betting is prohibited entirely, as well as in states with more restrictive betting rules that Kalshi's model circumvents. This widespread operation prompted Ohio and Tennessee regulators to pursue enforcement actions.

What's Next#

The appeals court upheld a lower-court victory for Ohio while overturning a Tennessee district court decision that had favored Kalshi, giving states a clearer legal foundation to crack down on the prediction market's activities.