The US Court of Appeals for the Sixth Circuit has ruled against Kalshi in its disputes with gambling regulators in Ohio and Tennessee, finding the prediction market operator has not established that its sports event contracts fall exclusively under federal regulation.
The September 25 decision concerned consolidated appeals arising from enforcement efforts by the Ohio Casino Control Commission and Tennessee Sports Wagering Council. Both regulators had challenged Kalshi's offering of sports event contracts without state gambling licenses.
Kalshi argued that its contracts are swaps traded on a designated contract market (DCM) regulated by the Commodity Futures Trading Commission (CFTC). On that basis, it maintained that the Commodity Exchange Act (CEA) pre-empted the states' gambling laws.
The Sixth Circuit rejected that argument at the preliminary injunction stage. It held that Kalshi had not shown its sports event contracts satisfy the CEA's statutory definition of a swap because the underlying sporting events do not inherently carry the required potential financial, economic or commercial consequence.
The court also considered Kalshi's preemption argument on the assumption that the contracts were swaps and reached the same outcome. It found that the CEA neither expressly nor impliedly preempts the Ohio and Tennessee gambling laws at issue.
The court said the CFTC's exclusive jurisdiction primarily concerns direct regulation and operation of DCMs, rather than displacing state laws that incidentally affect activity conducted through them.
As a result, the Sixth Circuit affirmed an Ohio federal court's refusal to grant Kalshi a preliminary injunction and vacated an injunction previously issued by a Tennessee federal court. Both cases were remanded for further proceedings.
The decision follows an August ruling from the Ninth Circuit involving Nevada. That court similarly concluded that Kalshi had not demonstrated a likelihood that the CEA preempts state gaming regulation of its sports event contracts.
However, the Third Circuit reached a different conclusion in April in Kalshi's dispute with New Jersey. It upheld a preliminary injunction preventing the state from enforcing its gambling laws against Kalshi, finding the operator had demonstrated a reasonable likelihood of succeeding on its CEA preemption argument.
In related news, NCLGS has urged the US Supreme Court to review the New Jersey dispute, arguing that the Third Circuit's interpretation could weaken states' authority over sports betting and other gaming activity.
The Sixth Circuit said geofencing provides one way for DCM operators to comply with differing state gambling laws while maintaining federally regulated markets
