A federal appeals court has ruled against prediction market operator Kalshi, finding that its sports-related event contracts do not qualify as swaps and therefore fall outside the federal regulatory framework overseen by the Commodity Futures Trading Commission (CFTC).
A three-judge panel of the Sixth Circuit Court of Appeals issued the decision Friday, concluding that Kalshi’s sports contracts are instead subject to state gaming regulations. The ruling marks another development in the broader legal dispute between prediction market platforms and states seeking to regulate sports-related contracts.
The case involved lawsuits Kalshi filed against regulators in Ohio and Tennessee. The company had asked courts to block the states from taking legal action over its contracts. An Ohio federal court rejected Kalshi’s request for an injunction, while a Tennessee federal court had granted similar relief.
The dispute has intensified as prediction markets expanded following the 2024 U.S. election. State authorities have argued that sports prediction contracts compete with licensed gambling businesses and effectively provide products similar to those available through traditional sportsbooks and betting applications.
State regulators have also raised concerns over taxation and age requirements. Prediction platforms operating under federal rules generally do not pay state gambling taxes, despite competing with state-licensed gambling operators. In addition, some prediction markets permit participation beginning at age 18, compared with the 21-year minimum commonly imposed by state gambling businesses.
The Sixth Circuit panel agreed that Kalshi was entitled to bring its challenge but rejected the company’s argument that its sports-event contracts should be classified as federally regulated swaps.
The judges examined whether the contracts involve events associated with a potential financial, economic or commercial consequence, as required under federal law. The panel determined that Kalshi’s sports contracts did not satisfy that definition.
The court used a hypothetical involving the New York Giants and the Super Bowl to explain its reasoning. If the contract defines the event as the Giants winning the Super Bowl, the victory itself represents the occurrence of the event. If the contract instead identifies the football game as the event, then the Giants’ victory represents the outcome of that event.
According to the ruling, the relevant statute does not clearly require courts to distinguish between an event and its outcome in the way Kalshi suggested. The judges therefore declined to impose such a limitation on the statutory definition.
Friday’s decision adds another ruling to an increasingly divided legal landscape surrounding prediction markets. The Third Circuit previously determined that the CFTC has jurisdiction over prediction markets, while the Eighth Circuit reached a different conclusion, ruling that sports-related contracts were not swaps.
The conflicting appellate decisions could ultimately bring the issue before the U.S. Supreme Court. The Third Circuit’s decision has already been appealed to the high court, setting up the possibility of further review of the dispute over federal commodities oversight and state gambling regulation.
