Prediction markets platform Kalshi received a new legal blow after losing an appeal before the Sixth Circuit Court of Appeals in the United States, in a case related to states’ ability to regulate contracts for sports events under local gambling laws.
A panel of three judges unanimously ruled in favor of the states of Ohio and Tennessee, finding that Kalshi had not shown that its contracts tied to sports events are «swaps» that fall under the jurisdiction of the Commodity Futures Trading Commission, or CFTC.
This ruling means the platform faces an additional hurdle in defending its business model in prediction markets, especially in cases where financial contracts intersect with state-level gambling regulations.
The new decision comes after a similar ruling from the Ninth Circuit Court of Appeals last month, adding further complexity to the legal dispute surrounding the company. In contrast, in April, the Third Circuit Court of Appeals issued a decision allowing the company to continue operating in New Jersey while the appeal process was ongoing.
That earlier ruling indicated that Kalshi might succeed in arguing that federal law supersedes New Jersey regulations. However, subsequent developments in the Sixth and Ninth Circuits have made the legal path more difficult, increasing the likelihood that the case will be heard by the Supreme Court.
This fight becomes even more significant because its outcome may determine where state authority ends and federal oversight begins for prediction market companies. The judicial resolution could also affect the limits of licensing and the regulation of derivatives contracts and event-linked contracts within the United States.
In a notable development, reports said that a group of lawmakers in the states filed an amicus brief with the Supreme Court urging it to intervene in the dispute between Kalshi and the gambling regulators, to clarify whether the state or the federal agencies has jurisdiction over this type of company.
While the final path has not yet been settled, Kalshi’s loss in the appeal makes it more likely that the Supreme Court will take up the case, particularly as there is growing divergence between rulings from different judicial circuits.