Judges Side With States, Not Feds
On September 25, a panel of the Sixth Circuit Court of Appeals unanimously ruled that Ohio and Tennessee can enforce their own gambling laws against Kalshi’s sports contracts.
The Sixth Circuit’s ruling followed similar outcomes in other circuits: the Eighth and Ninth Circuits both said sports-related prediction contracts like those offered by Kalshi are not swaps, while the Third Circuit took a different stance earlier this year by allowing Kalshi to operate in New Jersey during its appeal process. This widening circuit split is setting up a complex legal landscape for prediction markets nationwide.
The three-judge panel in the Sixth Circuit specifically addressed Kalshi’s cases against regulators in both Ohio and Tennessee.
The court’s decision directly affects federal courts across four states—Ohio, Tennessee, Michigan, and Kentucky—making it clear that state-level gambling regulations take precedence over federal commodity rules for these types of contracts. As reported by coindesk.com, this marks another blow for Kalshi after an Ohio federal court denied its attempt to block enforcement actions from state regulators.
Kalshi Forced to Block State Users
With the Sixth Circuit’s ruling in hand, Ohio and Tennessee now have clear authority to go after Kalshi if it continues offering sports event contracts to residents within their borders. The panel specifically noted that geofencing—technology that restricts access based on geographic location—was a workable solution for Kalshi to comply with both state and federal laws. This means Kalshi must lock out users in affected states or risk legal action under local gambling statutes.
For users in Ohio and Tennessee, access to Kalshi’s sports event markets could disappear overnight.
This isn’t just theoretical: Kentucky filed suit against both Kalshi and rival Polymarket earlier in 2023, and Michigan has its own ongoing litigation at the state level. The patchwork of state actions underscores how quickly access can shift depending on local court decisions or enforcement priorities.
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Federal vs. State Turf War Deepens
Kalshi’s legal strategy relied on convincing courts that its products were swaps—a term used in commodities law for certain kinds of financial contracts—thus falling under exclusive federal jurisdiction. But with three separate appeals courts now ruling otherwise, the company faces a daunting compliance challenge: every state could potentially set different standards for what is or isn’t allowed. The Sixth Circuit even stated that even if these were swaps, federal law would not automatically override local gambling statutes in Ohio or Tennessee.
This tension is especially stark when comparing New Jersey to other states: while the Third Circuit allowed Kalshi to keep operating there during its appeal as of April 2024, users in at least four other states are now definitively locked out unless higher courts intervene.
The stakes are high not only for Kalshi but also for other prediction market operators who may have hoped federal regulation would provide a single set of rules nationwide. Instead, they face a legal landscape where each new court ruling can redraw the map overnight.
Supreme Court Showdown Looms Large
With conflicting rulings from different circuit courts—the Third Circuit siding with federal oversight and multiple others backing state control—the stage is set for a potential Supreme Court review. State lawmakers have already filed an amicus brief urging the high court to clarify who gets to regulate companies like Kalshi: state gaming authorities or federal agencies like the CFTC. As of late September 2024, no hearing date has been set, but legal observers expect movement soon given the significance of the split.
Whether prediction markets will ever see uniform rules across all 50 states remains uncertain.
What to track going forward
If the U.S. Supreme Court agrees to hear the appeal already filed from the Third Circuit case involving Kalshi and state gaming authorities, it would immediately set a nationwide precedent on whether federal or state regulators have jurisdiction over prediction market companies; this remains unconfirmed as of now.
