Kalshi suffered another major legal defeat Friday, this time in legal fights against Ohio and Tennessee. A federal appeals court rejected the New York City-based firm’s claim that states cannot regulate its sports betting markets.
In the consolidated cases involving regulators in those states, the U.S. Court of Appeals for the Sixth Circuit handed down a 49-page ruling that Kalshi failed to show its “sports event contracts” are federally regulated “swaps” exempt from state gambling laws.
Ohio has sought to fine Kalshi $5 million over alleged illegal gambling.
Kalshi’s Argument Fails
Kalshi has argued in legal cases nationwide that it’s a federally regulated derivatives exchange and states cannot require it to obtain sports betting licenses or comply with their gambling laws.
The Sixth Circuit shot down that argument. It concluded that federal commodities law does not preempt Ohio and Tennessee gambling laws.
Kalshi has advertised sports bets nationwide through various channels, including in states where traditional online sportsbooks are illegal. Ohio and Tennessee have legalized and regulated house-banked sports betting.
Some Ohio policymakers are seeking to delegalize online sports betting.
SCOTUS Case Potential
The Sixth Circuit ruling deepens a federal appellate split over the legal status of prediction-market sports betting.
The Third Circuit previously sided with Kalshi in litigation involving New Jersey. That court ruled the company was likely to succeed on its argument that its trading contracts qualify as swaps subject to exclusive federal regulation.
But the Ninth Circuit reached the opposite conclusion in August, dealing Kalshi its most significant legal blow to date. That court said Kalshi had not shown that federal commodities law prevents Nevada, the nation’s casino gambling mecca, from enforcing its gambling laws.
Friday’s Sixth Circuit ruling gives state regulators another major legal victory to potentially block Kalshi from their respective borders, as several states have successfully done. The ruling also raises the likelihood that the broader dispute over federal and state authority will eventually reach the U.S. Supreme Court.
In the meantime, prediction markets such as Kalshi still operate in most states and are growing their volume thanks to the football gambling season.
