Kalshi lost another appeals case. Can states regulate prediction markets as gambling?

The Sixth Circuit ruled against Kalshi in Ohio and Tennessee a month after another appeals court sided with Nevada. New Jersey still has a conflicting ruling. The question for a national market is now practical as well as legal: can an exchange offer the same sports contract across state lines when its federal registration does not necessarily protect it from state gambling law?

An Ohio resident who wants to buy a Kalshi contract on a basketball game faces a different legal position from a New Jersey resident buying the same contract. The exchange and the payoff can be identical. The state line is what changes. On Sept. 25, the federal appeals court covering Ohio and Tennessee concluded that Kalshi had not shown its sports products were protected from those states’ gambling laws.

The 49-page Sixth Circuit opinion, in the consolidated cases KalshiEX LLC v. Schuler and KalshiEX LLC v. Orgel, contains two separate reasons. Its three judges said Kalshi had not shown that the sports contracts qualify as swaps under the Commodity Exchange Act. They then assumed, for the sake of argument, that the contracts were swaps and still found that the federal statute did not displace Ohio’s and Tennessee’s gambling rules. One answer concerns the product. The other concerns the boundary between two governments.

Neither holding is a final nationwide ban on sports prediction markets. Both cases concern preliminary injunctions, meaning orders that would stop state officials from enforcing their laws while litigation proceeds. The panel kept Ohio’s denial in place, removed Tennessee’s protection for Kalshi and returned both cases to lower courts. Kalshi remains a federally registered exchange. Registration alone did not win these particular motions.

Two states entered the appeal with opposite answers

Kalshi registered as a designated contract market with the Commodity Futures Trading Commission in 2020. On Jan. 22, 2025, it self-certified sports event contracts and began listing them. The opinion describes markets covering tournament results, golf, soccer statistics and combinations of player and game outcomes. A trader buys a yes or no position that pays according to the specified result. Kalshi had previously offered contracts on climate, economics, elections and crypto. The September decision concerns sports.

Ohio’s Casino Control Commission warned Kalshi that it was offering sports products without a state license. The regulator raised its 21-year minimum and alleged that people below that age could use the exchange. Those are the commission’s allegations, set out in the court record, not an independent finding here that a particular underage customer traded. Kalshi answered that its federal exchange status entitled it to offer contracts nationally. It sued to prevent enforcement, and an Ohio district judge refused a preliminary injunction.

Tennessee’s Sports Wagering Council sent its own cease-and-desist letter. Kalshi again sued, but a Tennessee district judge granted protection against state officials. The state appealed. In one federal circuit, then, the same legal theory had produced one order allowing enforcement and another restraining it. The appellate panel heard the cases together and resolved both on Sept. 25. Its decision affirmed Ohio’s refusal and vacated Tennessee’s injunction.

The distinction between an injunction and the eventual merits matters. The panel evaluated whether Kalshi had shown a likelihood of success sufficient to stop the states now. The underlying suits have been remanded. An operator seeking guidance today cannot treat a ruling on temporary protection as a completed trial judgment, yet a state that is no longer restrained can try to enforce its existing rules. A later appeal, rehearing or Supreme Court decision could alter the position.

Kalshi spokesperson Dani Lever told Reuters that the company expected the ruling to face further review and argued that different rules at state borders undermine a national market. The company has a concrete point: a single electronic order book is easier to operate when eligibility for a contract does not change according to each customer’s location. The appellate judges accepted that compliance could cost money. They did not accept that cost as proof that federal law forbids state restrictions.

A sports wager does not become a swap because it trades on an exchange

The Commodity Exchange Act gives the CFTC exclusive jurisdiction over certain transactions, including swaps traded on designated contract markets. Its definition of a swap includes payments tied to events or contingencies associated with potential financial, economic or commercial consequences. Kalshi says its sports contracts fit that definition and the exchange sits inside the federal regulatory system. If both propositions hold, it argues, states cannot regulate the product as gambling.

The Sixth Circuit focused on what happens when the game ends. A change in interest rates or a debt default has an economic consequence inherent in the event. A tennis result may affect sponsorship, television revenue or nearby restaurants, but those effects follow later decisions by other people. The panel regarded them as too indirect to turn the sporting result itself into the kind of financial contingency contemplated by the swap definition. It considered the terms of the product, not just the federally registered venue where customers trade it.

The opinion points to a problem with defining every event that affects somebody’s money as a swap. Under that definition, an ordinary sportsbook wager could qualify simply because the customer receives money if a team wins. Federal law restricts where swaps can be transacted. Applying its definition to every wager could pull conventional sports bets, including bets made outside registered exchanges, into a regime Congress did not clearly write for them. That consequence informed the judges’ reading of the statutory text; it was not a finding that all wagers actually violate federal law.

Kalshi has a serious textual reply. Congress gave the CFTC a special procedure for event contracts involving gaming. Why give the federal agency a way to prohibit such contracts if it has no jurisdiction over them? The panel answered that the special rule covers agreements, contracts, transactions or swaps. Federal authority to review a gaming-related event product therefore does not prove that every such product meets the narrower swap definition. A regulator can have a review power without possessing exclusive authority over every state-law aspect of the activity.

This is where the product’s label stops doing the work. An event contract can be a derivative in ordinary usage and still fail the particular statutory test Kalshi invoked for exclusive federal protection. The distinction explains why a CFTC filing or exchange listing is evidence of federal oversight without automatically settling a separate state’s licensing question. Crypto.news has explained how self-certification lets an exchange list an event contract without receiving advance approval for every new market. That process is one step in the federal system. It is not a court judgment that every listed market overrides gambling law.

Even a swap may face state gambling law

The second holding makes the opinion more consequential than a dispute over definitions alone. The judges assumed that Kalshi could win the swap argument and asked whether the federal statute would then block Ohio and Tennessee. They still said no. A higher court could disagree on the classification and leave this separate dispute alive.

Federal preemption comes in several forms. Congress can state that state law is displaced. State law can be blocked when it is impossible to comply with both systems. It can be displaced if it obstructs the federal law’s purpose, or if Congress occupied the whole regulatory field. The Sixth Circuit considered these routes and found that Kalshi had not shown the conditions for any of them at this stage.

Kalshi relied heavily on the CFTC’s exclusive jurisdiction over swaps on federal exchanges. The panel read that phrase as allocating federal regulatory authority, not as an explicit repeal of every state rule that might apply to an exchange operator. Congress used unmistakable preemption language elsewhere in commodities law, the judges observed, including provisions on some state gaming rules and insurance. They saw no equivalent broad command in the clause on which Kalshi relied.

The panel also pointed to the special rule that permits the CFTC to consider event contracts involving activities unlawful under state law. That reference would be odd, it reasoned, if Congress intended to erase the relevance of state law altogether. Federal review and state gambling enforcement can coexist under the panel’s reading. This interpretation differs sharply from the argument that federal authorization itself guarantees nationwide access.

The consequence is narrower than a claim that states control all event contracts. The decision addresses Ohio and Tennessee’s sports wagering laws as applied to Kalshi’s sports products. A weather contract, an election contract and a Bitcoin price contract can raise different classification and regulatory questions. Courts have not adopted a single rule for all of them. Treating the September ruling as a ban on prediction markets generally would erase the distinction the judges spent much of the opinion drawing.

The state border is an engineering problem as well as a legal one

One passage of the opinion does work that many discussions of jurisdiction skip. Kalshi argued that CFTC rules require impartial access to its exchange and that a state-by-state restriction would make compliance with both federal and state law impossible. The Sixth Circuit examined the rule itself. It said impartial access governs how an exchange treats eligible participants in the markets it offers; it does not oblige the exchange to offer every particular market in every state.

The judges then identified a concrete alternative: restrict access to certain contracts according to customer location. They noted that other companies have used geofencing while allowing eligible participants impartial access in the permitted area. Kalshi argued that this was technically challenging, time-consuming and expensive. The panel agreed that it could be difficult but said difficulty did not make compliance impossible. It cited Sporttrade as an example raised in the related New Jersey litigation.

Trace the operational result. The exchange could keep a sports contract unavailable to an Ohio customer while offering another contract to that customer and selling the sports contract elsewhere. It would need location checks at account opening and when orders are entered, rules for open positions if a customer’s location changes, and a way to prevent a restricted user from reaching the product through another interface. The opinion does not require this exact design or certify that any particular design would satisfy state officials. The steps are the practical implications of its conclusion that geography can matter within a national electronic venue.

Another route would be a state gaming license where available. That changes the product’s regulatory economics. Ohio and Tennessee laws, as summarized by the court, require sports customers to be at least 21 and impose licensing, tax and consumer protection duties. Tennessee requires its sports customers to be physically present in the state. A license also entails oversight by a regulator whose mandate differs from that of the CFTC. A company choosing this route would have to determine whether its existing exchange structure, customers and clearing arrangements could meet those requirements. The court did not order Kalshi to apply for a license or decide that an application would succeed.

Here is the part that a simple court scoreboard misses. If an exchange geofences states where it cannot offer sports markets, liquidity on the national order book may change even for users elsewhere. If it instead seeks multiple state permissions, trading eligibility and compliance costs vary across its customer base. The premise of one federal venue remains intact, but nationwide access to one specific product no longer follows automatically from that premise. Kalshi’s complaint about fragmentation is therefore more than a slogan. It describes a real cost that the Sixth Circuit judged legally bearable.

New Jersey gives Kalshi its strongest opposing case

The federal appellate courts disagree. In April, a divided Third Circuit panel affirmed a preliminary injunction protecting Kalshi from New Jersey enforcement. It found that the sports contracts qualified as swaps on a CFTC-registered exchange and that Kalshi had shown a reasonable chance of proving federal preemption. That is the strongest available judicial support for Kalshi’s position, not a stray quote from a company filing.

The Third Circuit saw the statute’s national market structure as deliberate. Congress created a federal regulator and an exchange designation process precisely to prevent incompatible rules from intruding on trading in covered products. It treated New Jersey’s attempt to bar particular sports contracts as interference with federally regulated exchange trading. The court’s conclusion gave Kalshi temporary protection while the New Jersey case proceeds. It did not issue a final judgment that every sports market is immune from every state law.

The competing reading has costs too. If a state can prohibit a federally listed contract by calling it gambling, a national derivatives venue may face a patchwork of local restrictions. The question then becomes how to distinguish a state regulating gambling from a state indirectly regulating the substance of a federal derivatives market. Kalshi’s concern about uncertainty is strongest at that boundary, where the same trade could be lawful to one participant and unavailable to another.

In August, the Ninth Circuit allowed Nevada to enforce its gaming rules during litigation. The Sixth Circuit has now reached a result favorable to Ohio and Tennessee. That produces three appellate circuits, two directions and no final nationwide rule. The Fourth Circuit still has a related Maryland appeal pending, according to the Sixth Circuit opinion. Calling the split a guaranteed Supreme Court case would go further than the evidence allows. A petition, an order granting review and a merits decision are separate events.

The record also cautions against treating judicial disagreement as evidence that one side is acting outside the law in bad faith. Judges reading the same federal provisions have reached opposite conclusions at the injunction stage. State officials are invoking their sports wagering statutes. Kalshi is invoking its federal registration and its reading of Congress’s jurisdictional grant. The legal contest lies in the interaction of those authorities.

The federal regulator cannot settle this alone

The CFTC has its own interest in event markets. It joined the Ohio appeal as an amicus, according to the Sixth Circuit’s listing of counsel, and it has proposed changes to its review process for contracts involving gaming and other activities. The agency can set exchange standards and evaluate listed products under the powers Congress granted it. A final rule cannot, by itself, rewrite the words of the Commodity Exchange Act that the appellate judges disagreed about.

Crypto.news’ account of the CFTC’s event contract proposal describes a separate regulatory track, while its report on the Ninth Circuit’s decision explains why a court loss does not automatically cancel a proposal. The agency’s power to regulate an exchange and a state’s power to apply a gambling statute can be concurrent under the Sixth Circuit approach. A rule saying the CFTC will review a product does not itself resolve that constitutional and statutory relationship.

Congress could change the underlying statute. It could define sports event contracts more clearly, specify the reach of federal jurisdiction, or expressly preserve a role for state gambling law. None of those choices is contained in the Sept. 25 opinion. A legislative answer would require text, votes and enactment. Until then, litigation and decisions about product access are doing work that a uniform statutory answer would otherwise do.

Sports leagues, data suppliers and partners have interests of their own. The NFL asked the CFTC to tighten safeguards in the proposed event contract rules, according to crypto.news’ account of its submission. The league’s integrity concerns are distinct from whether a contract is legally a swap. A stronger federal integrity standard might address one concern without ending the state authority dispute. Conversely, a court win on federal jurisdiction would not mean that a market is free from federal product review.

An injunction is temporary, and users need the jurisdiction

The Sept. 25 judgment changes which side has temporary protection in the two Sixth Circuit cases. It does not determine that a specific customer’s position will be voided, that an account will be closed or that a particular state has already completed a new enforcement action. Those outcomes depend on the state, the product, the procedural next step and the platform’s response. Legal exposure should be described with that sequence intact.

Nor does the decision settle how the courts will classify markets whose payouts depend on financial data, election outcomes or weather. The court analyzed sports contests and the state laws aimed at sports wagering. A platform offering several market categories can face a different legal analysis for each. That product-by-product distinction also matters for the CFTC’s review of what an exchange self-certifies. A federal designation attaches to the venue, while the legal character of a particular contract can still be contested.

The difference between the circuit rulings is concrete today. Kalshi has appellate support in New Jersey and lacks equivalent protection from Ohio and Tennessee under Friday’s ruling. Nevada has an appellate result favorable to its regulator. A reader should resist turning that map into an answer for all 50 states. Appeals in other jurisdictions, state licensing decisions and new orders can change access. Crypto.news previously mapped the state litigation, but this new Sixth Circuit ruling changes two important entries on that map.

The test of Kalshi’s national model is now whether one federal exchange can accommodate local exclusions without losing the advantages of a shared market. The Sixth Circuit says that is legally possible under the arguments presented. Kalshi says it is a costly patchwork that Congress sought to avoid. The Third Circuit agrees with much of the company’s legal reasoning. The next filings will show whether the split moves toward higher review or continues to be managed one state and one injunction at a time.

What to watch

• Kalshi’s next filing. A request for rehearing or Supreme Court review would identify which of the Sixth Circuit’s two independent holdings the company challenges.
• Ohio and Tennessee enforcement. New notices or orders would show how the states use their restored ability to apply sports wagering rules.
• Customer eligibility changes. Geofencing or age-rule changes would show how Kalshi responds operationally while the cases continue.
• The Maryland appeal. A Fourth Circuit ruling could change the appellate map and sharpen or narrow the disagreement.
• CFTC rulemaking. A final event contract rule may alter federal review, though it cannot alone resolve the courts’ statutory disagreement.

FAQ

Disclaimer: This article is for information and educational purposes only and does not constitute financial or investment advice. Figures reflect regulatory filings and reporting available at the time of writing and change with each disclosure. Nothing here is a recommendation to buy, sell, or hold any security or asset. Always do your own research. Information is accurate as of September 26, 2026.