For months, Kalshi has maintained that a single federal regulator shields its sports contracts from oversight by any state. On Friday, a federal appeals court rejected that position, and then rejected it again on a separate ground.
Ruling unanimously, a three-judge Sixth Circuit panel found that Kalshi had failed to demonstrate its sports contracts qualify as “swaps,” the class of derivatives that falls under the exclusive jurisdiction of the Commodity Futures Trading Commission. The panel didn’t stop there. The judges wrote that even if the contracts were swaps, the Commodity Exchange Act would not preempt the gambling laws of Ohio or Tennessee.
The second conclusion is the more significant one. Because of it, Kalshi cannot prevail simply by winning the dispute over definitions.
One decision, two states
On the ground, the ruling goes against Kalshi in both states. The panel affirmed an Ohio judge’s decision not to block that state’s regulators, and it vacated an injunction that had prevented Tennessee’s regulators from taking action against Kalshi.
The upshot: Ohio’s regulators kept their position throughout, and Tennessee’s have now regained theirs.
Soccer relegation and a Knicks bar promotion fell short
Kalshi’s case that its contracts are swaps rested on the wording of the statute. According to Kalshi, the contracts qualify because they depend on events “associated with a potential financial, economic, or commercial consequence.”
The panel rejected that interpretation. The judges read the phrase as covering events that are inherently linked to a financial consequence, and concluded that the outcomes of sporting events do not fit that description.
A trade group supporting Kalshi attempted to show the opposite with examples from the real world. It cited a Spanish soccer club that hedged against the risk of relegation, as well as a bar that hedged a free-drinks promotion linked to the Knicks. The court described these as “isolated examples” that were “a far cry from establishing that sports-event contracts are inherently associated with a financial consequence” or routinely used to hedge risk.
It was a sharp rebuff. A pair of anecdotes cannot convert an entire category of products into hedging tools, and the panel made that clear.
A problem of Kalshi’s own making, per the court
The opinion also addressed the argument that state laws place an unfair burden on federally regulated exchanges. According to the court, those laws have only a limited effect on exchanges, and exchanges experience that effect solely because platforms like Kalshi decided to list contracts that “are virtually indistinguishable from” sports wagers.
The Sixth Circuit was not the first to use that wording. The panel took it from a dissent in the Third Circuit case, which Kalshi won.
Appeals courts now stand at two to one
Tallying the appellate rulings, the momentum is running against Kalshi. The Sixth Circuit becomes the second court to back the states, after the Ninth Circuit sided with Nevada on Aug. 28. In April, the Third Circuit reached the opposite result, ruling for Kalshi in its dispute with New Jersey.
Another ruling is still to come. As the opinion points out, a Fourth Circuit appeal involving Maryland remains pending.
New Jersey is not holding out for that outcome. The state has already asked the Supreme Court to hear the issue.
How Kalshi responded
Kalshi pushed back on the decision. In a statement, spokesperson Dani Lever said that “the ruling shows exactly why a state-by-state patchwork doesn’t work.”
The criticism of the patchwork has merit, but Kalshi is currently the party losing within it. Right now, an identical contract can enjoy protection in New Jersey while remaining open to regulatory action in Ohio, Tennessee and Nevada. For anyone trading sports contracts on Kalshi, where you live now carries as much weight as the game you’re wagering on, and that will remain true until the Supreme Court decides whether to weigh in.