Appeals Court Deals Kalshi Another Legal Blow, Deepening Fight Over Sports Betting Contracts

A federal appeals court has handed prediction-market operator Kalshi its second major courtroom defeat in six weeks, ruling that Ohio and Tennessee may enforce their state gambling laws against the company's sports-related trading contracts despite Kalshi's insistence that federal commodities law shields it from state oversight.

The U.S. Court of Appeals for the Sixth Circuit ruled unanimously on Friday that Kalshi's sports-event contracts do not qualify as "swaps" under the Commodity Exchange Act, rejecting the company's central legal argument that its products fall under the exclusive jurisdiction of the Commodity Futures Trading Commission. Writing for the panel, Judge Julia Smith Gibbons said the contracts have only "downstream economic consequences, assuming they have the potential to cause economic consequences at all," language that echoed Kalshi's own earlier concession in court filings that the contracts carry "no inherent economic significance."

The decision affirmed a lower court's refusal to block Ohio's enforcement action and vacated a separate order that had shielded Kalshi from Tennessee's gambling statute, effectively clearing both states to treat the platform's sports contracts the same way they treat licensed sportsbooks such as DraftKings, FanDuel and BetMGM.

A Widening Circuit Split

Friday's ruling is the latest data point in an increasingly fractured legal landscape. A Third Circuit panel sided with Kalshi in April in a New Jersey case, finding 2-1 that its contracts likely do qualify as swaps. The Ninth Circuit went the other way in August, ruling against Kalshi in a Nevada dispute and separately finding tribal-gaming concerns in a California case. The Sixth Circuit's decision now gives Kalshi one win against two losses among federal appeals courts to rule on the merits, with a fourth case, out of Maryland, still pending before the Fourth Circuit.

New Jersey's attorney general asked the Supreme Court on September 2 to resolve the conflict, and legal analysts who track the litigation, including at Covers.com, say the growing split across circuits makes it increasingly likely the justices will take up the question of whether federal commodities law preempts state gambling regulation of prediction markets.

The Commodity Futures Trading Commission has so far stayed largely on the sidelines of the core jurisdictional fight, even as it moves on a related regulatory track. In June, the agency proposed a rule that would rewrite the framework governing event contracts, including new restrictions on the types of sports-linked products exchanges can list. The commission's enforcement division has separately signaled it intends to police trading conduct on Kalshi's platform directly, having disciplined two traders earlier this year for improper trading on Kalshi markets tied to a political race and a media event.

What Is At Stake Financially

The legal uncertainty carries real financial weight. Kalshi raised capital in the spring at a roughly $22 billion valuation, and the company has more recently been in discussions with investors at a valuation that could reach $40 billion or more, contingent on the outcome of the regulatory fight, according to Fortune, which cited PitchBook analysis putting a favorable-outcome valuation as high as $42 billion. Kalshi has told prospective investors it is eyeing a public listing as soon as 2027. Sports-related contracts make up a substantial share of the platform's overall trading volume, industry analysts tracking the sector say, meaning an adverse Supreme Court ruling would strike at the core of its business rather than a peripheral product line.

The stakes extend beyond Kalshi itself. State gaming regulators, licensed sportsbook operators and state treasuries all have a direct interest in the outcome. Licensed operators pay state licensing fees and taxes on sports betting revenue and have argued for more than a year that Kalshi's exchange-style contracts let it offer functionally identical products without the compliance costs, tax obligations or consumer-protection requirements — such as self-exclusion programs and problem-gambling funding — that state law imposes on regulated sportsbooks.

Reaction From Both Sides

Kalshi disputed the ruling's reasoning. A company spokesperson said the decision was wrong on the law and warned of the operational consequences of a state-by-state regulatory approach, arguing that "markets can't operate when the rules change at every state line." Kalshi has said in the past it will continue to seek further appellate review, including potentially at the Supreme Court, and that it does not expect Friday's ruling to be the final word.

State officials were more triumphant. Tennessee Attorney General Jonathan Skrmetti, whose office had pressed the Sixth Circuit earlier this year to reverse the lower court's injunction against the state, has argued consistently that Kalshi's product is sports betting by another name. "Kalshi can call their bets 'swaps' all they want, but everyone who so much as glances at the platform understands that this is sports gambling," Skrmetti said in his office's filings, adding that Tennessee's licensing regime "ensure[s] sportsbooks provide protections for problem gamblers, pay taxes to support our education system, and provide a fair and transparent service to users."

"Markets can't operate when the rules change at every state line," a Kalshi spokesperson said, defending the company's position that sports contracts should be regulated uniformly under federal commodities law rather than a patchwork of state statutes.

Coverage from outlets including Gaming Intelligence and DeFi Rate noted that Friday's decision addresses only preliminary relief, not a final adjudication that Kalshi's sports contracts are illegal — meaning litigation in the lower courts will continue even as the broader jurisdictional question moves toward Washington.

What Happens Next

In the immediate term, Kalshi is expected to have to restrict or geofence its sports-event contracts for users in Ohio and Tennessee while the underlying cases proceed, following the pattern it has adopted in other states where it has lost preliminary rulings. The company is expected to seek rehearing or further appellate review.

The bigger question is timing at the Supreme Court. With three circuits now having ruled on the merits — and reached different conclusions — legal observers say a cert grant is plausible within the current term, which would set up a definitive ruling on the scope of CFTC authority over sports-linked prediction markets sometime in 2027. Until then, Kalshi's ability to operate its most popular product category will continue to vary by state, and its fundraising and IPO timeline will remain shadowed by a legal question the company itself has said it expects to keep fighting.