6th Circuit Rules Kalshi Sports Contracts Are Gambling, Not Federal Swaps

Key points

• The 6th Circuit ruled that Kalshi’s sports contracts do not meet the statutory definition of a 'swap' and thus fall outside the CFTC’s exclusive jurisdiction.
• Judge Julia Smith Gibbons emphasized that gambling regulation is a core state power, and the Commodity Exchange Act does not preempt state laws in this area.
• The decision vacates a Tennessee injunction favoring Kalshi and upholds an Ohio ruling against it, marking the second major appellate loss for prediction markets after a similar 9th Circuit decision.
• Kalshi stated it expects the ruling to be overturned, arguing that a state-by-state regulatory patchwork is ineffective and that Congress intended a single federal regulator.
• The ruling deepens a circuit split, with the 3rd Circuit previously ruling that the CFTC has exclusive jurisdiction over such contracts, potentially prompting Supreme Court intervention.

Background

This ruling follows a series of legal battles over prediction markets, including a 9th Circuit decision in August 2026 that allowed Nevada to regulate Kalshi as gambling, and a 3rd Circuit ruling in April 2026 that sided with Kalshi against New Jersey. New Jersey has since petitioned the Supreme Court to resolve the conflict. Earlier in 2026, Washington state also ordered Kalshi to cease most betting operations due to gambling violations.

How outlets are covering it

Mashable and Reuters reported the core legal reasoning, focusing on the rejection of the 'swap' argument. CNBC highlighted the industry-wide implications, noting that this is the second major appellate loss for prediction markets and quoting Kalshi’s spokesperson on the inefficiency of state-by-state rules. Sportico provided deeper legal context, explaining that Judge Gibbons distinguished between financial risk hedging (like interest rates) and sports outcomes (like MVP awards), and noted that CME Group CEO Terry Duffy warned that federally regulated prediction markets could lead to heightened risk-taking similar to the 2007 housing crisis. Tennessee Attorney General Jonathan Skrmetti called the decision a 'great win,' while Kalshi’s spokesperson Dani Lever criticized the ruling as creating an unworkable regulatory patchwork.

Why it matters

The ruling intensifies the legal uncertainty surrounding prediction markets, forcing platforms to navigate conflicting state and federal regulations. It increases the likelihood that the Supreme Court will intervene to resolve the circuit split, which could determine whether prediction markets are regulated as gambling or financial instruments nationwide. This has significant implications for the industry’s growth, state tax revenues, and consumer protections.

What to watch

Kalshi has indicated it expects the ruling to be overturned and may seek further appeals. The Supreme Court is currently considering whether to grant review of the 3rd Circuit’s ruling in Kalshi v. Flaherty, and may be inclined to weigh in as the circuit split widens. States like Connecticut, New York, Arizona, and Minnesota have similar cases pending, and the outcome of the Supreme Court review could reshape the regulatory landscape for prediction markets across the country.