Kalshi Sports Bets Face Legal Challenge
Federal court rules Kalshi's sports contracts aren't federally regulated swaps.
In brief
Federal court rules Kalshi's sports contracts aren't federally regulated swaps. A federal appeals court ruled Kalshi's sports event contracts are not federally regulated swaps, leaving states free to enforce gambling laws against the platform. Originally reported by Pymnts.
Federal court rules
A federal appeals court ruled Kalshi's sports event contracts are not federally regulated swaps.
“A federal appeals court has dealt prediction markets another setback, ruling that sports event contracts offered by Kalshi are not federally regulated "swaps" and that states remain free to enforce their gambling laws against the platform.”
Sixth Circuit decision
The Sixth Circuit ruled Kalshi's contracts do not meet the CFTC's definition of a swap and states can enforce gambling laws.
“The unanimous U.S. Court of Appeals for the Sixth Circuit ruling Friday (Sept. 25) sided with Ohio and Tennessee, rejecting Kalshi’s argument that its status as a Commodity Futures Trading Commission-regulated exchange shields its event contracts from state gambling regulation.”
CFTC's stance
The CFTC argues Kalshi's contracts fall under its exclusive jurisdiction and has sued nine states over regulation.
“The CFTC has backed Kalshi’s position, arguing in an amicus brief that the contracts fall within its exclusive jurisdiction, and has separately sued nine states over efforts to regulate prediction markets.”
State laws apply
Ohio and Tennessee laws apply because Kalshi's contracts are virtually indistinguishable from sports bets.
“Ohio and Tennessee are not attempting to regulate Kalshi simply because it operates a designated contract market, the judges said. Their laws apply because Kalshi chose to offer contracts "virtually indistinguishable from" sports bets.”
Circuit court split
Three circuits have addressed Kalshi's contracts: Sixth and Ninth with states, Third with Kalshi.
“Three federal circuit courts have now addressed whether states can regulate Kalshi’s sports contracts. The Third Circuit sided with Kalshi in litigation involving New Jersey, while the Ninth Circuit ruled for Nevada. The Sixth Circuit has now joined the Ninth Circuit on the states’ side, leaving states with two appellate victories to Kalshi’s one.”
Next steps
Unless Supreme Court or Congress acts, Kalshi faces fragmented state gambling regulations.
“For prediction markets, the ruling raises the stakes of the federal-state battle significantly, Reuters reported. Unless the Supreme Court or Congress establishes a nationwide rule, platforms offering sports-event contracts face an increasingly fragmented regulatory landscape in which their products may be federally permissible yet still subject to state gambling restrictions.”
At a glance
A federal appeals court ruled Kalshi's sports event contracts are not federally regulated swaps, leaving states free to enforce gambling laws against the platform.
