A federal appeals court has dealt another legal setback to prediction market operator Kalshi, ruling that its sports-related event contracts are not swaps and therefore fall under the purview of state regulators rather than exclusive federal oversight.
The Ruling
A panel of the Sixth Circuit Court of Appeals concluded that Kalshi's sports-focused prediction contracts do not qualify as swaps under federal law. The distinction is significant: swaps are subject to the exclusive jurisdiction of the Commodity Futures Trading Commission, which would shield such products from a patchwork of state-level rules.
By determining that these contracts fall outside the swap definition, the court effectively opened the door for individual states to apply their own regulatory frameworks to the sports betting-style products offered on prediction platforms.
The court found that Kalshi's sports contracts are not swaps, exposing them to state-level oversight.
Mounting Pressure on Prediction Markets
The decision marks the latest in a string of adverse rulings for Kalshi as it continues to fight legal battles over whether its offerings amount to unlicensed gambling in various jurisdictions. State gaming regulators have argued that sports event contracts closely resemble wagering, which is heavily regulated at the state level.
Kalshi has maintained that its platform operates under federal commodities law and should be immune from state gambling statutes. The company has pursued this argument across multiple appeals courts as regulators in several states have moved to block or restrict its activities.
- The Sixth Circuit ruled the contracts are not swaps
- State regulators may now assert jurisdiction over the products
- The decision adds to a series of legal challenges facing Kalshi
What Comes Next
The ruling adds fresh uncertainty for the prediction market industry, which has expanded rapidly by offering contracts tied to sporting outcomes and other real-world events. A definitive resolution may ultimately require intervention from higher courts or clearer guidance from federal lawmakers on how such products should be classified and supervised.
For now, the outcome reinforces the position of state authorities seeking to bring prediction market sports contracts under their regulatory reach, complicating the operating landscape for platforms betting on a federally regulated future.