A U.S. federal appeals court ruled Friday that Ohio and Tennessee may regulate Kalshi’s sports prediction contracts under their state gambling laws, creating another major legal challenge for the rapidly expanding prediction-market industry.
The Cincinnati-based 6th U.S. Circuit Court of Appeals vacated an injunction that had protected Kalshi in Tennessee and upheld the denial of an injunction sought by the company in Ohio.
The unanimous three-judge panel concluded that Kalshi had not demonstrated that its sports-event contracts qualify as swaps subject exclusively to federal Commodity Futures Trading Commission oversight.
The court also concluded that the federal Commodity Exchange Act does not preempt the gambling laws of Ohio or Tennessee.
The decision matters beyond those two states because federal appeals courts have reached differing conclusions over the regulatory status of prediction markets.
The 9th Circuit previously determined that Kalshi’s event contracts could be subjected to Nevada gambling laws, while the 3rd Circuit concluded that New Jersey could not regulate the contracts under its gambling regime.
That division increases the possibility that the U.S. Supreme Court may eventually be asked to establish a nationwide legal standard.
Kalshi argues that a state-by-state regulatory system is incompatible with federally regulated event markets and has indicated that it intends to continue challenging restrictions on its contracts.
Prediction markets have expanded rapidly beyond elections and economic events into sports, weather and entertainment contracts, increasing the stakes of the dispute between state gambling regulators and the CFTC.
For investors and the broader financial-technology sector, the central issue is whether prediction markets ultimately operate primarily under a single federal derivatives framework or face overlapping state gambling restrictions.
The next legal milestones include any further appeal by Kalshi and possible Supreme Court consideration of the growing disagreement among federal appellate courts.
