A federal appeals court on Friday ruled that Ohio and Tennessee can apply their state gambling laws to Kalshi's sports contracts, adding to a growing legal dispute over who has the authority to regulate the rapidly expanding prediction-market business.
The ruling by the US Court of Appeals for the 6th Circuit, in Cincinnati, deepens a divide among federal courts over whether prediction markets should be regulated by state gambling authorities or by the federal Commodity Futures Trading Commission, Reuters reported.
The dispute could eventually reach the US Supreme Court, which may be asked to resolve the conflicting interpretations.
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Kalshi said it expected the ruling to face further legal review, arguing that a patchwork of state regulations could hinder the operation of prediction markets across the country. The company maintains that Congress intended the Commodity Futures Trading Commission to serve as the industry's nationwide regulator.
While sports have become a major focus, such markets also cover elections, weather and entertainment events, including the Oscars.
Writing for a unanimous three-judge panel, Circuit Judge Julia Smith Gibbons said Kalshi had not demonstrated that its sports contracts qualified as "swaps" that fall exclusively under CFTC oversight.
She also rejected Kalshi's argument that the federal Commodity Exchange Act overrides gambling laws in Ohio and Tennessee. The decision comes as several states have moved to restrict prediction markets, particularly contracts linked to sports.
Ohio and Tennessee are among the states seeking to apply their gambling regulations to operators such as Kalshi and Polymarket. Federal courts have reached differing conclusions on the issue.
The 9th Circuit last month held that Kalshi's contracts could be subject to Nevada's gambling laws, while the 3rd Circuit in April ruled that the contracts were not covered by New Jersey's gambling regulations. New Jersey has appealed that ruling to the Supreme Court.
Gibbons said financial swaps generally serve purposes such as managing risk, obtaining pricing information and hedging against financial exposures.
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In contrast, contracts based on outcomes such as the number of corner kicks in a soccer match did not appear to advance those objectives, she wrote. The 6th Circuit's ruling overturned a preliminary injunction issued by a Tennessee federal judge and upheld the denial of a similar injunction sought by Kalshi in Ohio.
Tennessee Attorney General Jonathan Skrmetti welcomed the decision, describing it as a victory for the state's authority to regulate sports wagering and protect bettors.
The ruling leaves Kalshi facing differing regulatory approaches across states as courts continue to weigh the scope of federal and state authority over prediction markets.
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