Prediction market Kalshi has lost a key appellate round after a federal appeals court ruled that Ohio and Tennessee can regulate its sports-event contracts under their state gambling laws.

The 6th US Circuit Court of Appeals ruled against the company on Friday, with a three-judge panel siding unanimously with the two states. The panel found that Kalshi had failed to demonstrate that its sports-event contracts qualify as “swaps” under the jurisdiction of the Commodity Futures Trading Commission (CFTC), the federal agency that oversees derivatives trading in the United States. The appeals court's opinion is available on CourtListener.

The “swaps” question goes to how Kalshi operates. Prediction markets are platforms where users trade contracts tied to the outcomes of real-world events, and contracts that qualify as swaps fall under CFTC oversight as derivatives — while contracts that fail that test sit outside federal jurisdiction, within the reach of state gambling laws.

At the heart of the dispute is whether contracts tied to the outcomes of sporting events should be treated as regulated financial instruments under federal law or as gambling activity subject to state oversight. The distinction carries practical weight for the industry: federal jurisdiction would place event contracts under a single national regulator, while the states' position would subject them to separate gambling rules in each state.

Friday's ruling followed a similar finding from the 9th Circuit Court of Appeals last month, which broke from an April decision by the 3rd Circuit Court of Appeals allowing the company to do business in New Jersey as its appeal process proceeds. The April ruling said Kalshi was likely to succeed with its argument that federal law preempts New Jersey's regulations. Conflicting rulings from different federal appeals courts — a situation known as a circuit split — often prompt the Supreme Court to step in and settle the question.

The conflicting appellate outcomes have set up a potential Supreme Court case. Cointelegraph reported on Wednesday that a group of state lawmakers had filed an amicus brief with the Supreme Court, urging it to weigh in on the case between Kalshi and state gaming authorities — a review that could resolve whether state authorities or federal agencies have jurisdiction over prediction market companies. The next signal to watch is whether the justices agree to take the case.

Source: Cointelegraph