Kalshi’s Second Appellate Loss Deepens Prediction Market Split

The Sixth US Circuit Court of Appeals has ruled that Ohio and Tennessee can regulate Kalshi’s event contracts under their own gambling laws, dismissing the company’s attempt to classify them as federally-regulated swaps. This marks Kalshi’s second appellate loss in a month, following a previous decision from the Ninth Circuit in favor of state regulation.

The unanimous three-judge panel in Cincinnati stated that Ohio and Tennessee retain the authority to apply their gambling laws to such contracts, regardless of their federal classification. This ruling adds to a growing split among federal appeals courts, as the Ninth Circuit previously found Nevada’s gambling laws applicable to Kalshi’s contracts, while the Third Circuit in Philadelphia ruled that such contracts are exempt from New Jersey’s gambling laws.

This inconsistency in rulings has drawn attention to the possibility of the US Supreme Court intervening, though it is not guaranteed by this decision. Kalshi’s spokesperson argued against the ruling, contending that a state-by-state approach to prediction markets is problematic due to the varied interpretations of federal law and the potential disruption of market operations at state lines.

The company sees the creation of a single federal regulator as the solution to these regulatory inconsistencies. Meanwhile, prediction markets continue to expand, offering bets on various outcomes like sports events, elections, and even geopolitical developments, raising concerns from experts about consumer protection and underage access.

A recent lawsuit filed by New York against Polymarket adds to the regulatory debate, highlighting the ongoing struggle to determine who should oversee these markets: federal authorities or state gambling regulators. With three circuits now divided on the issue, the Supreme Court may eventually be compelled to resolve the conflict, but it is uncertain whether this will occur soon.

In the meantime, Kalshi will operate under a fragmented regulatory framework, facing state gambling laws in Ohio, Tennessee, and Nevada, while being exempt from federal oversight in New Jersey.