Appeals court rules against Kalshi, says prediction markets can be regulated like gambling

On September 25th, a US appeals court decided against the prediction markets firm Kalshi, stating that the states of Ohio and Tennessee can regulate its event contracts under their gambling laws. This decision by the 6th US Circuit Court of Appeals in Cincinnati adds to a divide among federal courts regarding whether state regulators or the federal Commodity Futures Trading Commission should govern the rapidly expanding industry.

Kalshi forecasts the decision may not withstand further legal scrutiny. Kalshi spokesperson Dani Lever argued that the ruling exemplifies why a state-by-state regulatory system is ineffective, as markets cannot function when rules fluctuate at every state boundary. The panel's unanimous verdict, penned by Judge Julia Smith Gibbons, indicates that Kalshi did not demonstrate its sports event contracts to be "swaps" that should be subject to exclusive federal CFTC regulation.

Gibbons also ruled that the Commodity Exchange Act does not override Ohio's or Tennessee's gambling laws. Several states, including the two Republican-controlled states of Ohio and Tennessee, have attempted to tighten rules on prediction markets like Kalshi and Polymarket, creating conflict with the Republican administration of President Donald Trump and the CFTC.

Two other federal appeals courts have previously ruled on the same issue; the 9th Circuit in San Francisco stated last month that Kalshi's contracts fall under Nevada's gambling laws, while the 3rd Circuit in Philadelphia declared in April that they are not governed by New Jersey's gambling laws. New Jersey has appealed to the Supreme Court to reverse the 3rd Circuit decision.

The appeals court decision lifts a temporary injunction against Ohio's gambling laws, while upholding a similar denial in Ohio. Tennessee's Attorney General Jonathan Skrmetti hailed the ruling as a "great win" for his state, emphasizing the need to maintain safeguards for Tennessee sports bettors. Ohio's attorney general, Andy Wilson, has not yet commented on the matter.