A U.S. appeals court has ruled against prediction-market operator Kalshi, allowing the states of Ohio and Tennessee to enforce their gambling laws against the company's sports-event contracts and deepening a legal dispute that could ultimately reach the U.S. Supreme Court. Prediction markets are trading venues where users buy and sell contracts tied to the outcomes of future events, and whether such platforms answer to federal regulators or state gambling authorities has become a central legal question for the industry.

Sixth Circuit Rejects Kalshi's Federal Oversight Argument

In a unanimous decision, the 6th U.S. Circuit Court of Appeals rejected Kalshi's argument that its sports contracts qualify as financial "swaps" subject exclusively to federal oversight by the Commodity Futures Trading Commission (CFTC), the federal agency that oversees U.S. derivatives markets. The court also ruled that federal commodities law does not prevent Ohio and Tennessee from enforcing their state gambling laws against the company.

As a result, the two states may move forward with enforcement measures targeting Kalshi's sports-event contracts under their own gambling statutes — enforcement Kalshi had sought to block by positioning its products as federally regulated financial instruments.

Growing Split Among US Appeals Courts

The decision adds to a widening split among U.S. appeals courts over the treatment of sports prediction markets. In August 2026, the 9th Circuit ruled that Nevada could regulate Kalshi's sports contracts. The 3rd Circuit, however, reached the opposite conclusion in April 2026 in a case involving New Jersey.

Disagreements of this kind are a well-established trigger for Supreme Court review: when federal appeals courts split on the same question of law, the justices often step in to supply a uniform national answer. New Jersey has already asked the Supreme Court to review the 3rd Circuit's decision, seeking a ruling on whether states can regulate sports betting offered through prediction markets.

Derivatives or Gambling Products?

At the center of the dispute is the question of whether sports-event contracts offered by platforms such as Kalshi are financial derivatives under federal commodities law or gambling products subject to state regulation. The distinction shapes how these platforms can operate: classification as derivatives points toward a single federal framework, while classification as gambling leaves each state free to apply its own rules.

Kalshi has argued that a state-by-state regulatory system would make it difficult for prediction markets to operate nationwide. State authorities, for their part, have argued that sports betting falls within their traditional regulatory powers.

The ruling also lands amid a broader wave of regulatory and legal action involving prediction markets. The CFTC has invoked emergency powers to order Kalshi to continue operating amid a New York lawsuit, while New York — which has declared that "gambling by another name is still gambling" — has sued Coinbase and Gemini over their prediction-market offerings and filed a separate suit against Polymarket over an alleged illegal gambling operation.

The latest decision leaves the legal status of sports prediction markets increasingly dependent on the outcome of competing federal cases, with Supreme Court review now a potential route toward resolving the federal-versus-state jurisdiction dispute. Key developments to watch are whether the Supreme Court agrees to hear New Jersey's petition and how Ohio and Tennessee proceed with enforcement against Kalshi's sports-event contracts.