A sports event contract is not a hedging instrument, and a federal appeals court just said so
That, stripped of the legalese, is the heart of the Kalshi sports contracts ruling. A unanimous three-judge panel of the 6th U.S. Circuit Court of Appeals in Cincinnati held that Ohio and Tennessee can apply their own gambling laws to Kalshi’s sports-related event contracts. Kalshi’s core defence, that these contracts are “swaps” sitting exclusively under the Commodity Futures Trading Commission, did not convince the court.
If you have been following prediction markets as the clever workaround to America’s state-by-state betting patchwork, this is the moment that argument stopped being a sure thing. The thesis of this piece is simple: the federal exemption was never as solid as the marketing suggested, and the Sixth Circuit just showed why.
What the panel actually held
The ruling does two separate pieces of work, and the second one matters more than most coverage admits.
First, the jurisdictional question. “We hold that Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a ‘swap’ so as to fall within the scope of the CFTC’s ‘exclusive jurisdiction,'” the court wrote. In other words, Kalshi failed to carry its burden on the threshold claim that only the CFTC gets to say what it may list.
Second, and this is the belt-and-braces part: the panel said that even if the contracts were swaps, it would not matter here. “Even assuming that Kalshi’s sports-event contracts are swaps, we alternatively hold that the CEA neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws,” the opinion said. So winning the swap argument on appeal would not automatically rescue Kalshi in the Sixth Circuit’s view. The Commodity Exchange Act, the court reasoned, simply does not sweep state gambling law off the table.
The practical effect on the ground: the panel vacated a preliminary injunction that a Tennessee federal judge had granted, which had blocked the state from enforcing its gambling laws against Kalshi. It also upheld the denial of a similar injunction in Ohio. Both states are free to enforce.
Why “it’s a financial product” didn’t land
Judge Julia Smith Gibbons, writing for the panel, drew the line where a markets lawyer would least like it drawn. Swaps, she explained, generally involve financial measures, indices and instruments used to hedge risk. Not gaming outcomes.
The opinion’s rhetorical punch is in how it handles the hedging uses put forward for sports event contracts: teams “using prediction markets to hedge against the risk of paying performance bonuses,” or “a bar offering free drinks if” a particular result occurs. The panel was not persuaded that scenarios like those turn a contract on a game into a hedging instrument. Read that twice if you build sports products for a living. The court is not quibbling over contract design. It is saying that when the underlying event is a game and the economic function is a wager, calling the ticket a derivative does not change what it is.
Gibbons also leaned hard on federalism: gambling regulation “lies at the heart of the state’s police power,” and Congress has given states primary responsibility for deciding what forms of gambling happen inside their borders. That framing is what makes the preemption holding so awkward for the prediction-market side. You are no longer arguing about a definition. You are arguing against a long-standing default.
Prediction markets vs betting: where the difference is real
Here is where a lot of commentary goes wrong. Prediction markets and sportsbooks are genuinely different animals in structure, and genuinely similar in economic effect. Both things are true at once.
| Feature | Prediction market (event contracts) | Licensed sportsbook |
|---|---|---|
| Counterparty | Other traders on an order book | The operator takes the other side |
| Price format | Contract price implying a probability (a 60c “yes” implies roughly 60%) | Odds (decimal or American) with a built-in margin |
| How the venue earns | Trading fees and commissions | Overround priced into the odds |
| Position management | You can usually sell before the event settles | Cash-out offered at the operator’s discretion and price |
| Regulator claimed | Federal derivatives regulation (CFTC) | State gaming regulator, state by state |
| Tax, licensing, local fees | Structured as financial activity | State licence fees and gaming taxes |
The structural differences are real, and traders who like exchange mechanics will keep preferring them. But notice what the table does not say: it does not say one is safer, cheaper or more winnable. You still pay to transact, you still face uncertainty on every settlement, and a market that prices an outcome at 60c is telling you there is a meaningful chance you lose the whole stake. No venue structure removes that.
The court’s point, essentially, was that for a contract settling on a sporting result, the differences are plumbing. The thing you are doing with your money is the same thing.
What changes in practice
Four shifts worth watching if you operate, invest or simply play in this space.
- Enforcement risk in two states is live, now. With the Tennessee injunction vacated and the Ohio denial affirmed, state regulators in both jurisdictions have an unobstructed path to apply their gambling statutes to sports event contracts.
- The circuit split gets wider. This decision adds to a growing disagreement among federal appeals courts over whether prediction markets answer to state gambling rules or federal derivatives law. Splits like this are the classic raw material for Supreme Court review, though nothing here guarantees the Court takes it.
- Geography starts to matter again. A product whose pitch was “available everywhere because federal law says so” now has to contend with being available in some places and contested in others, which is exactly the operational reality licensed sportsbooks have lived with since state-level sports betting began.
- The licensed industry’s complaint gained a legal spine. Operators paying licence fees, gaming taxes and compliance costs have argued for years that event contracts on games are the same product without the bill. A federal appeals court has now endorsed the premise that states get to decide, which strengthens that argument in statehouses as much as in courtrooms.
What the ruling does not do is declare prediction markets illegal nationwide, strip the CFTC of its role over genuine derivatives, or settle the swap question for good. It is a preliminary-injunction posture in one circuit, with an alternative holding designed to survive even if the swap analysis is later disputed.
Frequently asked questions
Can Ohio and Tennessee shut down Kalshi sports contracts immediately?
The ruling removes the court-ordered block on enforcement in Tennessee and leaves Ohio’s position intact, so both states can enforce their gambling laws. How aggressively each regulator moves, and what further appeals follow, are separate questions.
Does the CFTC still regulate Kalshi?
Kalshi remains a federally regulated exchange. The court’s finding was narrower: that Kalshi had not shown its sports-event contracts meet the statutory definition of a swap, and that federal commodities law does not displace state gambling law here.
Is a prediction market contract the same as a bet?
Legally, that is the fight. Functionally, when the contract pays out on a sporting result, you are putting money at risk on an uncertain outcome with a cost of transacting built in. The Sixth Circuit treated that economic reality as decisive over the instrument’s label.
Will the Supreme Court decide this?
Possibly. Conflicting appeals-court rulings on the same federal question are a common reason the Court grants review, but no one can promise a hearing or predict the outcome.
A note on playing through the uncertainty
Whichever venue you use, treat sports event contracts as what they are: real money at risk on outcomes nobody can forecast reliably. State-licensed operators are required to offer tools like deposit limits, cool-off periods and self-exclusion, and if you trade through other channels it is worth checking what protections exist before you fund an account. Set a limit you would be comfortable losing entirely, and stop there. If gambling has stopped being a leisure spend for you, talk to a support service rather than a market.
