Kalshi loses another major court fight as states win power to regulate sports prediction markets

Kalshi has lost another major court fight over sports prediction markets, with the 6th U.S. Circuit Court of Appeals ruling Friday that states can apply local gambling laws to sports event contracts.

The unanimous three-judge panel said Ohio and Tennessee may regulate Kalshi’s sports markets. It is the industry’s second legal setback as the fight over prediction-market oversight moves toward the U.S. Supreme Court.

Kalshi and prediction websites have claimed that event contracts are swaps, which is a financial derivative regulated by the Commodity Futures Trading Commission.

States have argued that sports contracts are gambling products that fall within the jurisdiction of state law for sports betting. However, the appeals court rejected the argument of Kalshi.

“We hold that Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a ‘swap’ so as to fall within the scope of the CFTC’s ‘exclusive jurisdiction,’” the judges wrote.

Appeals judges let Ohio and Tennessee enforce gambling laws against Kalshi

States have sued prediction exchanges they say are running illegal gambling businesses without local licenses. Exchanges have also sued states, asking courts to block enforcement because they view their markets as federally regulated financial products.

The CFTC has sued nine states, arguing that the Commodity Exchange Act gives it sole authority over event contracts. The 6th Circuit rejected that. Even if Kalshi’s sports products were swaps, the judges said federal commodities law would not cancel Ohio or Tennessee gambling rules.

“Even assuming that Kalshi’s sports-event contracts are swaps, we alternatively hold that the CEA neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws,” the opinion said.

The ruling reverses a Tennessee federal district court decision backing Kalshi and keeps an Ohio district court decision favoring the states.

Jonathan Skrmetti, Tennessee’s attorney general, accused Kalshi of trying to avoid state betting rules and taxes. “Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed,” Jonathan said.

“Sports wagering is heavily regulated because it can do a lot of harm, and I’m glad we thwarted Kalshi’s efforts to remove every safeguard and put Tennessee sports bettors at risk,” Jonathan added.

Ohio regulator orders Kalshi to stop and warns sportsbooks against working with it

The Ohio Casino Control Commission, or OCCC, sent Kalshi a cease-and-desist letter saying it offered sports event contracts to Ohio residents without a sports gaming license. The notice appears in Schuler, DE 1-1, with the demand on Page ID 26.

The OCCC also accused Kalshi of making unlicensed sports products available to people below 21, Ohio’s legal gambling age. On Page ID 27, the regulator called that “a flagrant disregard of Ohio’s statutory gambling age limit,” citing Ohio Revised Code Section 3775.99(A)(2). It ordered Kalshi to “immediately cease offering these sports wagering products unlawfully in Ohio.”

Kalshi answered in Schuler, DE 1-2, Page IDs 29-30, citing district court rulings that had favored it. It described itself as “a federally licensed exchange . . . authorized to operate its market in all 50 states” and said Ohio or any other state could not regulate it.

The OCCC warned sportsbooks in Schuler, DE 1-5, Page IDs 57-59 that helping offer unlicensed sports gaming could raise questions about a licensee’s reputation and the integrity of Ohio sports betting. It said it would consider whether a licensed operator chose to work with a company it viewed as operating illegally and could take administrative action against any operator that did.

Kalshi called the warning a “clear attempt” to limit its business and partnerships, including relationships with no effect on Ohio. It said the commission was acting on what Kalshi called the mistaken view that it was involved in “online sports gaming.”

Dani Lever, a Kalshi spokesperson, said the company disagreed with Friday’s decision. “The ruling shows exactly why a state-by-state patchwork doesn’t work,” Dani said.

“Courts can’t agree on the basics: Some say federal law covers these contracts, and others say it doesn’t. Some recognize that sports have real economic impact, while others (incorrectly) claim they don’t,” Dani added.

“Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules,” Dani said.

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