Kalshi’s sports contracts lose Sixth Circuit appeal

The Sixth Circuit held that Kalshi’s sports event contracts do not meet the legal definition of a “swap” under a Dodd-Frank provision. It also ruled that, even if the contracts were swaps, the Commodity Exchange Act would not preempt Ohio or Tennessee gambling laws. Cointelegraph reported the ruling as setting up a potential Supreme Court case.

That creates a wider circuit split over how a novel financial instrument is classified. The Third Circuit sided with Kalshi 2-1 against New Jersey in April, while the Ninth Circuit ruled against it in a Nevada case on August 28. With the Sixth Circuit now also against Kalshi, the platform has won one of three circuit decisions. Put another way, two of three decisions, or 66.7%, have rejected Kalshi’s position.

The dispute turns on which regulator gets to control the contracts. Kalshi has argued that its sports products are swaps under federal commodities law, giving the Commodity Futures Trading Commission exclusive jurisdiction. State regulators argue that the products fall under state gambling laws instead. The Sixth Circuit’s ruling rejects both parts of Kalshi’s position in Ohio and Tennessee: the contracts are not swaps, and federal law would not displace state gambling restrictions even if they were.

Kalshi spokesperson Dani Lever made the company’s strongest case in response to the classification question: “The law does not require a swap to involve ‘intrinsic’ financial consequences — and even if it did, sports clearly do.” Lever also argued that national oversight is necessary because “Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules.”

The CFTC, under Chair Michael Selig, backed Kalshi’s Ohio appeal in an amicus brief filed in May. That support now sits against the Sixth Circuit’s unanimous reading of the statute. The court’s opinion also included a pointed objection from Judge Julia Smith Gibbons: “There is no conceivable reason why the market might need to know the probability that a broadcaster says a random word on air.”

For Kalshi, the immediate exposure is operational. Ohio’s Casino Control Commission ordered the platform in January to stop offering contracts without a license, and Tennessee’s Sports Wagering Council issued an order against Kalshi, Polymarket and Crypto.com’s Nadex that same month. Kalshi won a temporary restraining order in Tennessee days later, followed by an injunction from Judge Aleta A. Trauger in February. The Sixth Circuit has now vacated that injunction, while Chief Judge Sarah D. Morrison denied Kalshi a preliminary injunction in Ohio in March.

The ruling also matters beyond those two states. More than a dozen states, including Connecticut and Michigan, have taken enforcement action or filed lawsuits against Kalshi over its sports contracts. Kalshi recorded $38.67 billion in trading volume in August, so the state-by-state dispute reaches a market with substantial reported activity.

The Supreme Court question is already active. New Jersey Attorney General Jennifer Davenport asked the court on September 2 to review the Third Circuit’s decision. Kalshi’s appeal in Maryland remains pending before the Fourth Circuit. Until those proceedings are resolved, traders and prediction-market operators face conflicting appellate rulings over the same contract structure, with the next major decision potentially coming from the Supreme Court or the Fourth Circuit.