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Kalshi loses again as judges rule prediction markets must obey gambling laws
Kalshi’s defiance of state gambling laws may be headed to Supreme Court.
Another federal appeals court has ruled that states can enforce their gambling laws against the prediction market Kalshi, which asserts that it can only be regulated by the US government. On Friday, a three-judge panel in the US Court of Appeals for the Sixth Circuit ruled unanimously against Kalshi and in favor of Ohio and Tennessee.
While the US Commodity Futures Trading Commission has exclusive jurisdiction over “swaps,” the judges found that sports wagers offered on Kalshi do not meet the legal definition of swaps. Moreover, the court found that even if Kalshi wagers were swaps, the regulatory scheme created by Congress would not prohibit states from enforcing gambling laws on prediction markets.
“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,’” said the ruling written by Judge Julia Smith Gibbons, a George W. Bush appointee. “And, even assuming that Kalshi’s sports-event contracts are swaps, we alternatively hold that the CEA [Commodity Exchange Act] neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws.”
Kalshi sued Ohio and Tennessee after gambling regulators in each state indicated they would bring enforcement actions against the prediction market. The appeals court ruling on Friday upheld an Ohio district court decision against Kalshi and vacated a Tennessee district court order that went in favor of Kalshi.
Many states are trying to stop or restrict gambling on Kalshi, which offers sports betting throughout the US despite not obtaining state gambling licenses or paying state gambling taxes. Kalshi offers sports bets in some states where gambling on sports is entirely illegal and in other states where the law has restrictions on betting that Kalshi does not follow.
“Kalshi’s contracts fall within the CFTC’s exclusive jurisdiction,” Kalshi told the Sixth Circuit. The CFTC backed Kalshi in an amicus brief and has separately sued nine states in lawsuits that allege the states are infringing on the CFTC’s exclusive jurisdiction.
The Sixth Circuit was the third federal appeals court to rule on whether states can regulate gambling on Kalshi. There was already a circuit split, as Kalshi scored a victory in a Third Circuit ruling involving New Jersey and lost a Ninth Circuit case involving Nevada.
State governments now have two major victories to Kalshi’s one, and a Fourth Circuit case involving Maryland is still pending. New Jersey recently asked the Supreme Court to settle the matter for the whole country.
Under US law, swaps include contracts that are dependent on events “associated with a potential financial, economic, or commercial consequence.” Whether a sporting event has such a consequence is one of the key questions courts have been trying to answer.