US Sixth Circuit Rules Kalshi Sports-Event Contracts Are Not Federally Regulated "Swaps" and Fall Under State Gambling Laws

Key terms

• Prediction market: a platform that lets users buy and sell contracts on the outcome of an event (such as an election or a sports game). Kalshi is one such platform.
• Swap: a category of financial contract under US federal law. If a contract is deemed to fall into this category, it is regulated by federal agencies.
• CFTC: the US Commodity Futures Trading Commission, the federal agency that regulates products such as futures and swaps.
• Circuit court of appeals: an appellate court in the US federal court system, organized into regional "circuits," ranking above district courts and below the Supreme Court.
• Circuit split: when different circuit courts of appeals reach different conclusions on the same legal question.

Background: the regulatory tug-of-war between prediction markets and states

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Sources are collected, independently checked, then reviewed by Jev.

CoinDesk reports that prediction markets grew rapidly after the 2024 US election, and since then state governments have sought to bring prediction markets offering sports-related contracts under state regulatory frameworks. The states cite three reasons. First, these platforms compete with state-regulated gambling operators and offer the same products. Second, for many states, federally regulated platforms do not pay state taxes yet still compete with state-regulated operators. Third, prediction markets are often open to people aged 18 and over, while gambling operators in most states accept only customers aged 21 and over.

The Sixth Circuit's reasoning

CoinDesk reports that this ruling covered two lawsuits Kalshi filed separately against regulators in Ohio and Tennessee. Kalshi sought injunctions, that is, court orders barring the states from bringing actions against it. The federal district court in Ohio denied Kalshi's request, while the federal district court in Tennessee granted it. A three-judge panel of the Sixth Circuit agreed that Kalshi had the right to bring these lawsuits, but disagreed that its sports contracts are federally regulated swaps.

Quoting the opinion, CoinDesk reports the court wrote: "While we agree with Kalshi that its sports-event contracts are conditioned on the occurrence of 'event[s],' we conclude that Kalshi’s contracts do not depend on events that are 'associated with a potential financial, economic, or commercial consequence' within the meaning of the statute." In other words, the court accepted that Kalshi's sports-event contracts are conditioned on whether an "event" occurs, but found that these are not events with a potential financial, economic, or commercial consequence as the statute means.

The opinion used the New York Giants winning the Super Bowl as an example of how the wording depends on how an "event" is defined. If the event is "the Giants win," then a win means "the event has occurred." If the event is actually "the game itself," then the Giants winning is merely the game's outcome. The court found that the statutory text does not clearly require excluding "outcomes" from the definition of an event, so it declined to read such a limitation into the statute.

Why this ruling could head to the Supreme Court

CoinDesk reports that before this, the Third Circuit ruled that the CFTC has jurisdiction over prediction markets, while the Eighth Circuit ruled that sports-related contracts are not swaps. The Sixth Circuit's conclusion aligns with the Eighth Circuit, creating a circuit split among appeals courts. CoinDesk believes such a split should prompt the US Supreme Court to take up the matter; the Third Circuit case has already been appealed to the Supreme Court.

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