Prediction Markets: Kalshi Loses A Major Battle Over Its Sports Contracts

The federal appeals court for the 6th circuit ruled Friday in favor of Ohio and Tennessee against Kalshi. States can apply their sports betting laws to the platform’s contracts, a second loss on appeal bringing the case closer to the Supreme Court.

A second appeals court rules in favor of the States

The three judges of the 6th circuit unanimously ruled Friday, September 25, in favor of Ohio and Tennessee, the latest episode of a legal battle spanning several fronts for Kalshi. The platform hoped to have its sports contracts recognized as “swaps”, those derivative products that the CFTC, the US futures market regulator, regulates exclusively.

For the court, a swap must be intrinsically linked to a financial consequence, such as a rate increase or payment default. The consequences of a match are “too tenuous, indirect, and speculative,” according to the text of the decision. The court adds a second reason: even if otherwise, federal law would not deprive Ohio and Tennessee of their gambling laws.

Specifically, Ohio comes out strengthened and the injunction protecting Kalshi in Tennessee falls. The cases return to lower courts, and the decision sets precedent in Ohio, Tennessee, Michigan, and Kentucky.

Divided appeals courts, the Supreme Court as arbiter

The conflict has lasted more than a year. In January, Tennessee already demanded the halt of Kalshi’s sports contracts, those of Polymarket and Crypto.com. Three appeals courts have since ruled: the 3rd supported Kalshi in April (New Jersey), the 9th validated Nevada’s position in August, and the 6th joins the states’ camp. The 4th still has to rule on Maryland.

The Supreme Court is already seized: on September 2, New Jersey asked it to rule on the circuit conflict, and Kalshi’s response is expected by November 9. State elected officials urge the Court to take it up via an amicus brief, reports Cointelegraph. The CFTC claims the same exclusive competence and has sued nine states.

For Kalshi, the puzzle of state-by-state regulation

If the precedent is confirmed, the platform will have to deal with a patchwork of requirements: licenses, age verification, taxes, and geographic blocks. The court dismissed the cost argument: isolating its users by state is “technically difficult, time-consuming and costly,” but “costly does not mean impossible.” Michigan already requires Kalshi to have geo-blocking verified by a third party, under penalty of a $500,000 fine per day.

Sports betting accounts for 83% of Kalshi’s volume, and its US traffic grew by 1,520% in one year. This legal saga stirs the news in the United States, without yet knowing who, states or Washington, will set the rules for these markets.

Nothing will be decided for several months, but Ohio and Tennessee regain the power to enforce their laws now, and each procedure will redraw the map of American sports betting a bit. In Europe too, regulators are toughening the tone against Polymarket and Kalshi.