Sixth Circuit Hears Oral Arguments in Kalshi Sports Prediction Market Appeal

The legal battle over Kalshi's sports prediction markets reached another pivotal stage on Thursday as the U.S. Court of Appeals for the Sixth Circuit heard oral arguments from attorneys representing Kalshi, Ohio, and Tennessee.

The hearing marks one of the most closely watched cases surrounding the regulation of prediction markets in the United States. While the three-judge panel did not issue a ruling, the arguments highlighted the central question that continues to divide courts across the country: whether Kalshi's federally regulated event contracts fall under the exclusive authority of the Commodity Futures Trading Commission (CFTC) or remain subject to state gambling laws.

A ruling has not yet been announced, but the outcome could have significant implications for prediction markets nationwide.

Judges Press Both Sides on Federal and State Authority

During the hearing, Kalshi argued that the Commodity Exchange Act (CEA) gives federally regulated derivatives exchanges exclusive authority to list event contracts, preventing individual states from imposing separate licensing or gambling regulations.

Kalshi attorney Will Havemann pointed to the Third Circuit's earlier ruling in the company's favor against New Jersey, arguing that Congress intended to avoid a fragmented regulatory system where exchanges would face different rules in every state.

However, Judge Eric L. Clay questioned whether the issue was as straightforward as Kalshi suggested.

According to court proceedings, Judge Clay noted that while the Commodity Exchange Act grants federal authority in certain areas, the law also preserves some state powers. He questioned whether Congress had ever explicitly transferred the regulation of sports wagering from state governments to federal regulators.

The panel also explored whether sports event contracts should legally qualify as financial derivatives under federal law. Kalshi maintained that sporting events can carry commercial and economic consequences, bringing them within the scope of the Commodity Exchange Act, while the judges indicated that the issue remains unsettled.

Ohio and Tennessee Argue Sports Contracts Are Gambling

Attorneys representing Ohio and Tennessee argued that Kalshi's sports event contracts are fundamentally sports wagers rather than financial instruments.

Ohio Solicitor General Mathura Sridharan argued that accepting Kalshi's interpretation would imply that sports betting has always fallen under federal derivatives law rather than state gaming regulations, a conclusion she described as inconsistent with decades of legal and regulatory practice.

Tennessee Assistant Attorney General Aaron Bernard echoed that position, describing Kalshi's products as a modern form of parimutuel wagering rather than federally protected swaps.

Both states argued that Congress never intended the Commodity Exchange Act or the Dodd-Frank Act to federalize sports betting, maintaining that regulating gambling has traditionally remained within state authority.

The states also contended that if sports event contracts violate provisions of federal commodities law, they would be prohibited under both federal and state law, eliminating any argument that federal law preempts state gaming regulations.

Key Arguments Presented During the Hearing

• Sports event contracts qualify as federally regulated swaps under the Commodity Exchange Act.
• Sports event contracts are sports wagers regulated by state gaming laws.
• Federal law preempts conflicting state regulations.
• Congress never intended to replace state gambling regulation with federal oversight.
• A nationwide regulatory framework prevents conflicting state rules.
• Accepting Kalshi's position could effectively federalize sports betting nationwide.

Appeal Could Shape the Future of Prediction Markets

The Sixth Circuit appeal follows two conflicting district court decisions issued earlier this year.

In February, a federal judge in Tennessee granted Kalshi a preliminary injunction, finding the company was likely to succeed on the merits of its case and agreeing that federal law could preempt state enforcement.

Less than three weeks later, a federal judge in Ohio reached the opposite conclusion, ruling that Kalshi had not shown sports event contracts qualify as swaps under the Commodity Exchange Act and concluding there was no clear evidence that Congress intended federal law to override state gambling statutes.

The differing decisions have made the Sixth Circuit one of the most closely watched appellate courts in the prediction market industry.

If the Sixth Circuit ultimately sides with Ohio and Tennessee while the Third Circuit's earlier decision in favor of Kalshi remains in place, the conflicting appellate rulings could create a circuit split, increasing the likelihood that the dispute is reviewed by the U.S. Supreme Court.

For now, Kalshi's legal fight continues without a timeline for a final ruling, leaving one of the industry's most consequential regulatory questions unresolved.

Stay tuned to UMG Gaming for more updates on prediction markets, trading platforms, and the latest developments shaping the future of event-based trading.