Sixth Circuit Rules Kalshi Sports Contracts Are Bets, Not Swaps

The Sixth Circuit Court of Appeals has determined that Kalshi’s sports-related contracts are ordinary bets, not federally protected financial swaps. This ruling permits Ohio and Tennessee to enforce their respective gambling laws against the company, deepening a circuit split on the issue.

What Happened

A three-judge panel for the U.S. Court of Appeals for the Sixth Circuit unanimously ruled that Kalshi’s sports contracts do not meet the legal definition of a swap, as reported by USA Herald. This decision allows Ohio and Tennessee to regulate these contracts under state gambling laws. The company had previously argued that these contracts were federally protected swaps, placing them outside state gambling jurisdiction, a defense it has employed since listing sports contracts in January 2025 (USA Herald).

The panel’s decision vacates an injunction Kalshi had secured in Tennessee and upholds Ohio’s earlier denial. Circuit Judge Julia Smith Gibbons, writing for the panel, highlighted Kalshi’s prior admission that its sports contracts lacked real economic value beyond the wager itself. Additionally, the court held that even if the contracts were swaps, the Commodity Exchange Act would not preempt Ohio’s or Tennessee’s gambling statutes (USA Herald).

Key Details

• The Sixth Circuit concluded that Kalshi’s sports contracts are not financial swaps, contradicting the company’s previous arguments, according to USA Herald.
• This ruling enables Ohio and Tennessee to apply their state gambling laws to Kalshi’s operations (USA Herald).
• The decision deepens a circuit split, with the Third Circuit having previously sided with Kalshi in a New Jersey case, while the Ninth Circuit ruled against the company in a Nevada case (USA Herald).
• A similar legal theory is being challenged in New York, where Attorney General Letitia James sued Polymarket for allegedly operating an unlicensed gambling operation, with Polymarket contending its event contracts are swaps (USA Herald).

Why It Matters

This ruling has significant implications for companies operating prediction markets that rely on the ‘swap’ defense to avoid state gambling regulations. The diverging opinions among circuit courts, the Third Circuit supporting Kalshi’s swap argument in New Jersey, and the Ninth and Sixth Circuits ruling against it, indicate a lack of uniform regulatory clarity. This legal inconsistency suggests the issue may ultimately be decided by the Supreme Court, particularly as New Jersey has already requested the Supreme Court’s intervention (USA Herald).

The ongoing legal battles, including similar lawsuits filed by New York’s Attorney General against both Polymarket and Kalshi, demonstrate the broad regulatory scrutiny facing the prediction market industry. Every state-level loss for companies like Kalshi increases pressure and may encourage more state attorneys general to initiate similar legal actions, according to USA Herald.

What’s Next

The resolution of this jurisdictional conflict is anticipated to hinge on a Supreme Court decision, as Robinhood and Crypto.com, facing similar exposures, have also urged the justices to address the matter nationally. Until the Supreme Court takes up the case, companies in this industry will continue to face regulatory uncertainty across different states (USA Herald).

Originally reported by USA Herald·Published 26 Sep 2026, 21:48