A federal appeals court has handed Kalshi its second appellate loss in a month, and the practical question it raises is no longer abstract: can a nationally registered exchange offer the same sports contract in every U.S. state when its federal registration does not automatically shield it from state gambling law?
On Sept. 25, a three-judge panel of the Sixth Circuit Court of Appeals ruled against Kalshi in two consolidated cases, KalshiEX LLC v. Schuler and KalshiEX LLC v. Orgel, involving Ohio and Tennessee. The panel affirmed an Ohio judge’s refusal to block state enforcement and vacated a Tennessee injunction that had protected the exchange. Roughly a month earlier, another appeals court had sided with Nevada against the prediction market operator, while the Third Circuit has reached the opposite conclusion in a separate dispute. Three federal circuits have now addressed sports event contracts, and they do not agree.
## What the court actually decided
The 49-page opinion contains two separate holdings, and both matter.
First, the judges said Kalshi had not shown that its sports contracts qualify as “swaps” under the Commodity Exchange Act. Kalshi, registered as a designated contract market with the Commodity Futures Trading Commission since 2020, argued that contracts paying out on game results fit the statutory definition of a swap — a payment tied to an event with financial, economic or commercial consequences — and therefore sit inside the CFTC’s exclusive jurisdiction.
The panel was unpersuaded. A change in interest rates or a debt default carries an economic consequence inherent in the event itself. A tennis result may eventually affect sponsorship revenue, television income or nearby restaurants, but the judges found those effects flow from later decisions by other people and are too indirect to convert a sporting outcome into the kind of financial contingency the swap definition contemplates. The opinion also noted a reductio: if every event that affects somebody’s money were a swap, an ordinary sportsbook wager could qualify simply because the bettor receives money when a team wins — pulling conventional betting, including bets placed far outside registered exchanges, into a federal regime Congress did not clearly write for them.
Second, and more consequentially, the court assumed for the sake of argument that the contracts were swaps — and still ruled that federal law does not displace Ohio’s and Tennessee’s gambling rules at this stage. The judges walked through the recognized forms of preemption: express statutory displacement, impossibility of dual compliance, obstruction of federal purposes, and field preemption. They found Kalshi had not shown the conditions for any of them on a preliminary-injunction record.
Kalshi had leaned on the CFTC’s exclusive jurisdiction over swaps traded on designated contract markets. The panel read that language as allocating federal regulatory authority, not as an unmistakable repeal of every state rule that might touch an exchange operator. Congress, the judges observed, used explicit preemption language elsewhere in commodities law — including provisions addressing some state gaming rules — and no equivalent broad command appears in the clause Kalshi invoked.
## How Ohio and Tennessee got here
The paths to the Sixth Circuit were mirror images. Kalshi self-certified sports event contracts on Jan. 22, 2025, listing markets on tournament results, golf, soccer statistics and combinations of player and game outcomes, having previously offered contracts on climate, economics, elections and crypto.
Ohio’s Casino Control Commission warned Kalshi that it was offering sports products without a state license, citing the state’s 21-year minimum age for sports wagering and alleging that younger users could access the exchange — allegations in the court record rather than adjudicated findings. Kalshi sued, and an Ohio district judge declined to freeze enforcement. Tennessee’s Sports Wagering Council issued its own cease-and-desist letter; Kalshi sued again, and this time won a preliminary injunction — until the Sixth Circuit took it away.
A Kalshi spokesperson told Reuters the company expects the ruling to face further review and argued that differing rules at state borders undermine a national market. The company has a practical point: a single electronic order book is easier to run when contract eligibility does not change with each customer’s location. The panel accepted that compliance could cost money; it did not accept cost as proof that federal law forbids state restrictions.
## What it does — and does not — mean
Both rulings concern preliminary injunctions, not final judgments. The underlying cases return to the lower courts, and a later appeal, rehearing or Supreme Court decision could reshape the landscape. But a state no longer restrained can attempt to enforce its existing rules in the meantime.
The decision is also narrower than a blanket ban. It addresses Ohio and Tennessee sports wagering law as applied to sports products. A weather contract, an election contract or a Bitcoin price contract can raise different classification questions, and courts have not adopted one rule for all of them.
For traders, the stakes are straightforward. An Ohio resident who wants to buy a Kalshi contract on a basketball game now faces a different legal position from a New Jersey resident buying the identical contract on the same exchange. As of Sept. 26, Bitcoin trades near 84,160 USD, and prediction markets tied to crypto and macro outcomes remain listed alongside the contested sports products. The Sixth Circuit’s answer — that a sports wager does not become a swap merely because it trades on a federal exchange, and that even a swap may face state gambling law — leaves the industry waiting on the Supreme Court to settle what a “national” market legally means.
Price snapshot at publication (CoinGecko, Sep. 26): BTC 84,160 USD; ETH 2,688.77 USD; SOL 121.33 USD.
A 49-page opinion with two holdings and the headline only captures one. The swaps analysis is what really matters for every other exchange.
this is the part nobody gets. if sports contracts arent swaps under the CEA, the whole federal preemption argument falls apart for everyone, not just kalshi
Guarantees nothing until Kalshi actually files. after Nevada they might push en banc in the Sixth first and stall the split another year
en banc stalling only works if the sixth grants rehearing, which unanimous panels rarely do. the third circuit split hands them the cert hook anyway
en banc in the sixth is a long shot after a unanimous three judge panel. cert is the faster route
Agreed on the swaps analysis being the real holding. If sports contracts fall outside the CEA, every preemption argument built on CFTC registration needs a rewrite.
Right, and the CFTC registered Kalshi as a DCM in 2020 without ever calling its sports contracts swaps. The panel basically read that silence as meaningless.
Third Circuit going the other way basically guarantees SCOTUS takes this. Circuit split on sports contracts within a year, wild.
^ the Tennessee injunction getting vacated is the real gut punch here. schuler and orgel combined into one loss too
SCOTUS taking a gambling preemption fight would have sounded insane two years ago. now its just tuesday
second appellate loss in a month and kalshi still acting like the CFTC registration is a force field. three circuits have ruled and they do not agree
three circuits, three readings of the same CEA language. whoever drafts the cert petition basically gets to pick the framing for scotus
watch them frame cert around the vacated Tennessee injunction instead of the swaps question. easier sell to four justices
the Third Circuit disagrees though. thats the real story here, a clean circuit split
the registration force field lasted exactly until nevada, ohio and tennessee all said no lol
A 49 page opinion with two holdings, and the second one vacating the Tennessee injunction is the part that actually hurts. That was the order keeping state regulators away.
Kalshi spent years marketing its DCM registration as a golden ticket. Turns out Ohio and Tennessee gambling statutes never got that memo.
ohio refusing to block enforcement was the early signal. tennessee folding next surprised nobody
vacating the Tennessee injunction means state regulators can start sending cease and desist letters now. the compliance scramble is the real story, not scotus timing