The U.S. Court of Appeals for the Sixth Circuit recently delivered a significant blow to prediction market operator Kalshi, reversing a preliminary injunction that had prevented Tennessee state officials from enforcing state gambling laws against the exchange. In its September 25, 2026, opinion, the Sixth Circuit ruled that Kalshi's sports event contracts are not "swaps" under the Commodity Exchange Act (CEA), thus denying them the protection of federal preemption and exclusive Commodity Futures Trading Commission (CFTC) jurisdiction.

The Sixth Circuit's Ruling

The Sixth Circuit's decision directly overturns a February 2026 ruling by the U.S. District Court for the Middle District of Tennessee, which had granted Kalshi a preliminary injunction. That district court had found that Kalshi was likely to succeed on the merits of its argument that its sports event contracts were swaps, and therefore subject to the CFTC's exclusive jurisdiction, preempting state regulation. However, the appellate court disagreed, concluding that the contracts do not meet the definition of "swaps" as defined by the CEA.

This ruling also consolidated and affirmed a separate decision from the Southern District of Ohio, which had previously denied Kalshi a similar preliminary injunction against Ohio state officials. The Sixth Circuit's unified stance across both cases reinforces its interpretation that state gambling laws can apply to these types of event contracts.

Read our Prediction Market Report 2026 here.

Implications for State Authority

The Sixth Circuit's finding that Kalshi's sports event contracts are not federally regulated swaps has immediate and far-reaching implications for state regulatory authority. By removing these contracts from the CFTC's exclusive jurisdiction, the court has effectively opened the door for states like Tennessee and Ohio to regulate them under their respective gambling laws. This contrasts sharply with Kalshi's consistent argument that its platform, as a designated contract market (DCM) overseen by the CFTC, should be shielded from state-by-state regulation.

The decision empowers state officials, such as William Orgel, Chairman of the Tennessee Sports Wagering Council, and Tennessee Attorney General Jonathan Skrmetti, to pursue enforcement actions against Kalshi without the previous federal court impediment. This could lead to a patchwork of regulations across different states, complicating Kalshi's ability to offer its sports event contracts nationwide.

Background on the Legal Battle

Kalshi has been engaged in a multi-front legal battle with several states over the regulatory classification of its event contracts, particularly those related to sports. The core of these disputes revolves around whether these contracts are federally regulated derivatives (swaps) or fall under state gambling laws. This ongoing conflict highlights the tension between federal and state oversight in the nascent prediction market industry.

Notably, the Sixth Circuit's decision creates a significant circuit split. Earlier this year, the U.S. Court of Appeals for the Third Circuit reached an opposite conclusion in a similar case involving Kalshi, affirming a preliminary injunction that protected Kalshi from state enforcement in New Jersey. That ruling found Kalshi's contracts to be swaps, placing them under federal preemption. This divergence among federal appellate courts underscores the legal uncertainty surrounding prediction markets.

What to Watch

With the Sixth Circuit's ruling, the regulatory landscape for prediction markets, especially those offering sports-related contracts, has become even more complex. The existence of a circuit split between the Sixth and Third Circuits significantly increases the likelihood of the issue being taken up by the U.S. Supreme Court. Kalshi may seek a writ of certiorari to resolve this fundamental disagreement over federal preemption and the definition of swaps. The outcome of any potential Supreme Court review would have a definitive impact on the future of prediction markets in the United States, determining whether they operate under a unified federal framework or a fragmented state-by-state regulatory regime.

Original announcement: U.S. Court of Appeals for the Sixth Circuit