Sixth Circuit Sides With States in Major Kalshi Appellate Loss

Kalshi has suffered another major setback in its fight to keep sports event contracts outside state gambling regulation, with a federal appeals court siding with Ohio and Tennessee.

In a unanimous Sept. 25 decision, the Sixth Circuit upheld an Ohio judge’s refusal to shield Kalshi from state enforcement and vacated a Tennessee injunction that had protected the company. Both cases were sent back to the district courts for further proceedings.

The ruling deepens a split among federal courts of appeals over prediction market apps. The Third Circuit sided with Kalshi in New Jersey, while the Ninth Circuit sided with Nevada. The Sixth Circuit has now joined the states’ side of that dispute. The Sixth Circuit’s ruling is a significant loss for Kalshi, but it does not amount to a nationwide shutdown of the platform.

Why the court rejected Kalshi’s argument

Kalshi’s position centers on the Commodity Exchange Act and the Commodity Futures Trading Commission. The company argues that its sports event contracts qualify as swaps traded on a federally regulated exchange, placing them under the CFTC’s exclusive jurisdiction and beyond state gambling enforcement.

The Sixth Circuit rejected that argument on two grounds.

First, the court said Kalshi had not established that its sports contracts qualify as swaps under the CEA. Second, it held that even if the contracts were swaps, federal law would not preempt Ohio’s and Tennessee’s gambling laws.

“Kalshi’s reading would give the CFTC jurisdiction over event contracts that bear no relation to the goals Congress had in mind,” Circuit Judge Julia Smith Gibbons wrote.

Kalshi pushes back as Ohio welcomes the ruling

Kalshi said it disagreed with the decision and expects further review.

“The ruling shows exactly why a state-by-state patchwork doesn’t work,” Kalshi spokesperson Dani Lever said in a statement reported by Reuters. Lever argued that Congress created a single federal regulator so markets could operate under consistent national rules.

Ohio Gov. Mike DeWine welcomed the decision, saying on Sept. 28 that prediction-market operators should not be able to avoid the rules that apply to conventional sports wagering.

Other Kalshi cases show a divided legal picture

New Jersey remains the clearest appellate counterpoint.

On April 6, a divided Third Circuit upheld Kalshi’s preliminary injunction in KalshiEX v. Flaherty. The majority concluded that Kalshi had demonstrated a reasonable chance of succeeding on its argument that the Commodity Exchange Act preempted New Jersey law. Judge Jane Roth dissented.

The majority treated Kalshi’s sports contracts as swaps and found that state restrictions interfered with the federal regulatory framework.

Nevada produced the opposite result.

In its Aug. 28 KalshiEX v. Assad decision, the Ninth Circuit affirmed the dissolution of preliminary protection covering Kalshi’s sports contracts. The court concluded that Kalshi had not shown that the CEA preempted Nevada’s gaming regulations and remanded the separate question involving election contracts to the district court.

Kalshi filed for panel rehearing and rehearing en banc on September 9.

A Sept. 24 order in the underlying Nevada case then stayed discovery and further proceedings pending the Supreme Court’s consideration of three related petitions. The order does not restore Kalshi’s sports-contract injunction or decide the underlying preemption question.

Supreme Court petitions are already pending

The Supreme Court now has three petitions presenting closely related questions about state regulation of sports event contracts.

New Jersey filed its petition on Sept. 2, asking the justices to review the Third Circuit’s decision. The case is docketed as No. 26-299, and the Supreme Court has extended Kalshi’s response deadline to Nov. 9.

Two related petitions come from the Nevada litigation. Robinhood Derivatives filed its petition on September 10. The case is docketed as No. 26-338, and Nevada’s response is due Oct. 14.

North American Derivatives Exchange, doing business as Crypto.com | Derivatives North America, filed another petition on Sept. 11. That case is docketed as No. 26-344, with Nevada’s response due Oct. 15.

The three petitions give the Supreme Court several possible routes to address the disagreement among the appellate courts.