Kalshi encountered a fresh judicial defeat on Friday after a U.S. appeals court determined that Ohio and Tennessee may regulate the prediction market operator's sports contracts under their respective state gambling laws.

In a unanimous decision covering two lawsuits that Kalshi filed against regulators in both states, the Sixth U.S. Circuit Court of Appeals held that the company's sports event contracts do not qualify as swaps — the class of derivative contracts that falls under federal oversight by the Commodity Futures Trading Commission. That finding places the contracts outside the federal regulatory framework on which Kalshi has relied to operate its markets and to argue that federal, rather than state, rules should govern its offerings.

The verdict intensifies an ongoing legal contest over whether prediction markets should fall primarily under federal financial regulation or under state gambling statutes.

States Gain Ground

Friday's ruling strengthens Ohio's and Tennessee's ability to pursue regulatory action against Kalshi's sports offerings. State authorities have contended that these contracts function much like conventional sports wagers, since users can buy and sell positions tied to the outcomes of sporting events.

According to Reuters, the decision lands in the middle of a wider conflict over whether federally regulated prediction platforms may compete against state-licensed gambling operators without complying with local rules, including licensing and taxation requirements.

Kalshi maintains that its event contracts are overseen at the federal level by the Commodity Futures Trading Commission. Courts, however, have now delivered conflicting rulings across different jurisdictions.

A Widening Legal Split

The Sixth Circuit's decision follows a series of rulings that have left the regulatory landscape increasingly fractured. The Ninth Circuit recently permitted Nevada to regulate Kalshi's sports markets, while the Third Circuit earlier arrived at a different conclusion in a case involving New Jersey. That emerging split could heighten pressure on the U.S. Supreme Court to settle the question of regulatory authority — and, until it does, the same product can face different regulatory treatment depending on the jurisdiction.

The legal ambiguity comes as prediction markets expand beyond politics into sports, finance, and other event-based contracts. Kalshi has also explored products tied to financial markets, underscoring the broader business implications of the regulatory dispute.

For Kalshi and its competitors, the eventual outcome could determine whether sports prediction contracts remain within a national financial framework or become subject to a patchwork of state gambling regulations.