6th Circuit Court rules Kalshi's prediction markets subject to gambling laws

The 6th U.S. Circuit Court of Appeals ruled on Friday that Kalshi, a regulated prediction‑market platform, cannot rely on a federal “swap” exemption and therefore may be subject to state gambling laws. The three‑judge panel sided unanimously with Ohio and Tennessee, which had sued the company for offering sports‑event contracts that the states say are illegal gambling. The decision marks the latest legal setback for an industry hoping to operate under the oversight of the Commodity Futures Trading Commission rather than state gambling commissions.

Kalshi launched in 2021 after winning CFTC approval to run contracts that settle on the outcome of real‑world events, from election results to sports scores. The company has argued that its products are “financial swaps,” a classification that would place them under federal jurisdiction and shield them from the patchwork of state gambling regulations. That argument has been central to the sector’s growth strategy, as it would allow nationwide access without needing a license in each state. However, a wave of state actions over the past year – including lawsuits in Arizona, Iowa and Texas – has challenged that premise, claiming the contracts are bets rather than investment products.

The appellate court found Kalshi had not demonstrated that its sports‑event contracts fit the legal definition of swaps. The judges noted that swaps typically involve hedging financial risk, while Kalshi’s products are more akin to wagers on uncertain outcomes. By rejecting Kalshi’s claim, the court affirmed the states’ authority to regulate the platform as gambling. The ruling applies not only to Kalshi but also sets a precedent that could affect other prediction‑market sites such as PredictIt and Polymarket, which operate in a similarly gray regulatory space.

Kalshi said it will consider an appeal to the U.S. Supreme Court, though the process could take months. In the meantime, the company must suspend or modify its offerings in Ohio and Tennessee, and it may face similar actions in other states. Industry observers warn that the decision could stall the broader push to legitimize prediction markets as a financial tool. If the Supreme Court declines to hear the case, state regulators could gain a stronger foothold, forcing the sector to either adapt to gambling frameworks or retreat from the U.S. market altogether.