US Sixth Circuit rules against Kalshi, reinforcing state control over sports betting markets

A three-judge panel of the US Court of Appeals for the Sixth Circuit ruled on Friday that Kalshi’s sports event contracts do not qualify as swaps. That pushes the products back under state gambling regulation rather than federal oversight by the Commodity Futures Trading Commission (CFTC), which is exactly the kind of line high-risk payment teams need to watch.

1. The ruling came out of two cases Kalshi brought against regulators in Ohio and Tennessee. Kalshi had sought an injunction to stop both states from taking legal action against it. A federal court in Ohio denied that request, while a federal court in Tennessee granted it.
2. The Sixth Circuit agreed that Kalshi had the right to take the dispute to court, but rejected its core argument: that its sports products are swaps regulated at the federal level. In practical terms, that means the company does not get to treat the contracts as outside ordinary state gambling rules in the Sixth Circuit’s view.
3. The decision adds to a growing set of court rulings across the United States on the same question, and it creates another path for the US Supreme Court to step in and settle the issue. For PSPs and acquiring teams, that matters because the regulatory answer changes which compliance stack applies: federal commodities supervision or state gaming rules.
4. States have been pushing to regulate prediction markets after they gained momentum following the 2024 elections. Their argument is straightforward: these products compete directly with state-regulated betting platforms and, in practice, offer the same service.
5. Local regulators have focused on two issues in particular. First, tax: platforms operating under federal supervision do not pay state taxes, even though they compete in the same market as state-taxed betting operators. Second, age gates: prediction markets often allow access from 18, while most state operators require 21.

In its reasoning, the court used a sports example involving a hypothetical New York Giants Super Bowl win. The key point was that the legal classification of the contract depends on how the underlying event is defined: if the event is the team’s victory, the win is just proof that the event occurred; if the event is the game itself, then the win is the result of that event. The court said it found no clear basis in the text of the law to exclude certain outcomes from that definition, so it did not write that limitation in on its own.