A U.S. federal appeals court has ruled that Ohio and Tennessee can pursue their state gambling regulations against Kalshi’s sports prediction contracts, creating another important legal development for the growing prediction market industry.
On September 25, a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit issued its decision in two consolidated cases involving KalshiEX LLC, Ohio and Tennessee. The court affirmed an Ohio district court’s decision to deny Kalshi’s request for a preliminary injunction while vacating a Tennessee court order that had temporarily protected the company from state enforcement.
The decision does not amount to a nationwide ban on Kalshi’s sports contracts. Instead, it addresses whether Kalshi was entitled to preliminary protection from state regulators while its broader legal challenges continue.
Ohio and Tennessee Take Different Positions
Kalshi launched its sports event contracts after self-certifying them with the Commodity Futures Trading Commission (CFTC) on January 22, 2025. The company operates as a federally registered designated contract market and argues that its sports contracts fall under federal commodities law.
Ohio and Tennessee took a different view.
Ohio’s Casino Control Commission warned Kalshi that its sports contracts constituted gambling activity subject to state regulation. Ohio requires individuals to be at least 21 years old to participate in sports wagering, according to the Sixth Circuit opinion. Kalshi challenged the state’s position and sought a preliminary injunction to prevent enforcement.
A federal district court in Ohio rejected that request.
In Tennessee, the state’s Sports Wagering Council also sent Kalshi a cease-and-desist letter. Kalshi challenged the action there as well, but the Tennessee district court granted the company a preliminary injunction. Tennessee subsequently appealed the ruling.
The Sixth Circuit has now reversed the Tennessee injunction while leaving the Ohio decision in place.
Court Questions Whether Sports Contracts Are Swaps
One of the central questions in the case was whether Kalshi’s sports contracts qualify as “swaps” under the Commodity Exchange Act.
Kalshi argued that its federally regulated exchange and the structure of its contracts placed the products within the CFTC’s regulatory jurisdiction. If the contracts qualified as swaps, Kalshi argued, federal law could prevent states from regulating them as gambling products.
The Sixth Circuit was not persuaded at the preliminary-injunction stage.
The judges examined the nature of the underlying event and the relationship between the sporting outcome and potential economic consequences. The court distinguished sports results from events such as interest-rate changes or credit defaults, where the economic consequences are directly connected to the event itself.
A basketball, football or tennis result can certainly have economic effects. A game can influence ticket sales, sponsorships, television revenue and other commercial activity. However, the court viewed those consequences as indirect because they depend on subsequent decisions by other parties.
Based on that reasoning, the panel concluded that Kalshi had not demonstrated that its sports contracts qualified as swaps under the Commodity Exchange Act.
Federal Registration Does Not Automatically Override State Laws
The court also considered the issue even assuming, for argument, that Kalshi’s contracts were swaps.
The Sixth Circuit concluded that federal registration did not necessarily prevent Ohio and Tennessee from applying their gambling regulations. In other words, operating under a federal regulatory framework does not automatically eliminate every state-level restriction.
This distinction could become important for prediction market operators seeking to offer sports-related contracts across the United States.
Kalshi has argued that different rules in different states could make it more difficult to operate a single nationwide electronic marketplace. However, the appeals court determined that the potential cost and complexity of complying with state regulations were not enough to establish that federal law prohibited those regulations.
Legal Landscape Remains Divided
The Sixth Circuit decision is also significant because it adds to a developing split among federal appellate courts over sports-related prediction contracts.
Three federal appellate circuits have now addressed legal disputes involving sports contracts, with the Third Circuit taking a different position from the Sixth Circuit on key aspects of the regulatory dispute.
The disagreement means the legal status of sports prediction markets remains unsettled at the federal level. Further proceedings, potential rehearing requests or review by the U.S. Supreme Court could influence how federal and state authority is ultimately defined.
For now, the Sixth Circuit ruling applies to the cases involving Ohio and Tennessee. The underlying litigation will continue in the lower courts following the appellate panel’s decision.
Kalshi remains a federally registered exchange, but the September 25 ruling shows that federal registration alone does not resolve the question of whether individual states can regulate particular sports-related products under their gambling laws.
The case could therefore become an important reference point as prediction markets expand into sports and other event-based contracts. The outcome also highlights the growing legal tension between federally regulated prediction exchanges and state gambling frameworks, particularly when the same digital product can be accessed across multiple state jurisdictions.
