Prediction market platforms continue to battle state regulators over prediction contracts tied to the outcome of sporting events. A recent 6th Circuit appeal by KalshiEX LLC reflects this trend and implicates important issues involving not just the betting industry and sports prediction markets but also broader regulatory questions for prediction market platforms.
Background
Kalshi offers “event contracts” that allow customers to trade on the occurrence or non-occurrence of future events related to climate, pop culture, technology, economics, and tangible commodities. Kalshi is registered with the CFTC as a Designated Contract Market (DCM), a trading exchange that allows traders to buy and sell financial derivatives like futures and swaps.
Since late 2024, Kalshi customers also have been able to trade on the outcome of sports events. In March 2025, the Ohio Casino Control Commission sent a cease-and-desist letter to Kalshi stating that offering event contracts on sporting events is prohibited by Ohio law, and demanding Kalshi stop offering them in the state. In January 2026, the Tennessee Sports Wagering Council sent a similar letter, asserting that Kalshi was not in compliance with Tennessee laws and regulations and did not have the required license to offer sports events contracts.
Kalshi sought to enjoin both state regulators from instituting enforcement actions against it, arguing that the states were “intruding on the CFTC’s exclusive authority to regulate futures trading on CFTC-regulated exchanges” and that these contracts are federally regulated derivatives subject to the Commodity Exchange Act (CEA). Kalshi v. Orgel, No. 3:26-cv-00034, Doc. 1, at ¶71 (M.D.Tenn. Jan. 9, 2026). The District Court for the Middle District of Tennessee entered a preliminary injunction. By contrast, in a second case, the District Court for the Southern District of Ohio held that Kalshi failed to establish a likelihood of success on the merits of its suit under its exclusive jurisdiction, conflict preemption, or field preemption theories.
Late last month, the 6th Circuit heard oral argument on Kalshi’s consolidated appeal. On appeal, Kalshi argued that the text of the CEA preempts state regulation of DCM trading. Kalshi pointed out that in its 1974 amendments to the CEA, Congress not only granted the CFTC exclusive jurisdiction over DCM trading, it also “deleted a provision that would have preserved state regulation.” KalshiEX LLC v. Schuler, No. 26-3196, Doc. 28, at *41 (6th Cir. May 5, 2026); According to Kalshi, the Southern District of Ohio erred in holding that the contracts Kalshi offers are not swaps that fall under the exclusive jurisdiction of the CFTC. At oral argument, Kalshi was asked to explain the difference between the sports event contracts it offers and typical sports betting. Kalshi replied that the CFTC is actively working to answer questions like these in its proposed rulemaking. Both in its briefing and at oral argument, Kalshi argued that DCM trading is better left to the “uniform federal regulation” provided by the CFTC rather than the notions of 50 different state regulatory agencies. One member of the three-judge panel repeatedly probed Kalshi on this point, saying “You’re making a policy-based argument that things would come out badly when they fall within the purview of state regulators. I’m not sure I’m following that argument.”
With the 6th Circuit’s ruling still pending, the stakes of this fight extend well beyond Ohio and Tennessee.
Headed to the Supreme Court?
Kalshi has pragmatic, albeit unusual, allies in its jurisdictional battle. The CFTC has sued multiple states asserting its authority supersedes state gaming law, effectively standing side by side with Kalshi and prediction market platforms against states. The DOJ has joined the CFTC in filing federal civil complaints and intervention motions against states attempting to enforce local gambling laws. Notably, the CFTC attempted to appear and argue in Kalshi’s 6th Circuit matter, but the panel denied the CFTC’s attempts.
The 6th Circuit’s skepticism at oral argument may foreshadow an upcoming ruling against Kalshi, setting up a potential circuit split and opportunity for the U.S. Supreme Court to weigh in on the debate. Earlier this year, the 3rd Circuit resolved a similar appeal in Kalshi’s favor, holding that Kalshi was likely to prevail on the merits of its argument that its sports event contracts constitute swaps governed by the CFTC. KalshiEX LLC v. Flaherty, No. 25-1922, Doc. 105, at 4 (3rd Cir. Apr. 6, 2026). Similar fights in the 4th and 9th circuits, and the ongoing flood of recent state-level lawsuits (such as New York’s recent $36 billion civil enforcement action against Kalshi in late July) further demonstrate the need for the Supreme Court to weigh in on this issue.
Broad Industry Implications
The outcome of this debate has massive implications for the United States’s $17 billion sports betting industry. The Financial Times reported in early 2026 that Kalshi generated $1.3 billion in estimated annualized revenue from sports contracts, about 90% of the platform’s annualized estimated revenues. Recent estimates suggest that Kalshi’s annual revenues may be approaching $4 billion, with sports contracts making up 85% of its total contract volume. It is not a stretch to say that an outcome subjecting Kalshi to 50 different state gambling laws would have existential implications for the company. Conversely, if these sports event contracts are deemed swaps and subject to the CFTC’s exclusive jurisdiction, it will create additional pressure on state-registered gambling platforms.
Amid the litigation activity, the CFTC proposed its own comprehensive set of rules governing prediction markets in June 2026. It, too, would have significant implications for the sports event contracts at issue in these matters. Further, Congress is seeking to get involved in the fight. In March 2026, Sens. John Curtis and Adam Schiff introduced the Prediction Markets Are Gambling Act, a bipartisan bill that would amend the CEA to reclassify sports and casino-style event contracts as gambling outside the CFTC’s jurisdiction. Although the bill appears to have little chance of advancing during the current administration, future elections could change those odds.
Given the significant implications of an outcome on either side, the only safe prediction is that this battle will continue until clear jurisdictional authority is established for sports event contract trading.