Sixth Circuit Court of Appeals Rules Kalshi Sports Contracts Subject to State Regulation

TechFlow reports on Sept. 26 that, according to CoinDesk, on Sept. 25, the U.S. Court of Appeals for the Sixth Circuit issued a new ruling determining that sports-related event contracts issued by prediction market platform Kalshi do not constitute "swaps" under federal law. The court concluded that this means these contracts are not subject to the jurisdiction of the Commodity Futures Trading Commission (CFTC), but should instead fall under state-level gambling and wagering regulatory frameworks.

This ruling stems from a legal dispute brought by Kalshi against regulators in Ohio and Tennessee. State authorities argued that Kalshi's sports contracts operate similarly to state-run betting platforms, yet avoid paying state taxes due to federal exemptions, and allow participation from individuals aged 18 and older, which they claim unfairly captures market share. The court explicitly stated in its opinion that although these contracts are based on "events," they do not depend on events with "potential financial, economic, or commercial consequences," and therefore fail to meet the statutory criteria for federal derivatives.

The Sixth Circuit's decision further widens the divide within the U.S. judicial system on this issue. Currently, the Third Circuit has upheld the CFTC's jurisdiction over such markets, while the Eighth Circuit and the Sixth Circuit support state-level regulation. This significant judicial split has been viewed as a key catalyst for U.S. Supreme Court intervention, which may ultimately determine the legal status of such prediction markets.