Key Points

  • Kalshi's sports-event contracts do not qualify as 'swaps' under the CEA because the underlying events are not intrinsically associated with financial consequences.
  • The CEA's exclusive jurisdiction provision displaces only direct regulatory authority over DCM licensing and operation, not state laws that incidentally burden DCMs.
  • Even if Kalshi's contracts were swaps, the CEA neither expressly nor impliedly preempts state gambling laws because of multiple savings clauses and the narrow scope of the preemption provision.
  • The ruling creates a circuit split with the Third Circuit, which ruled in Kalshi's favor, aligning instead with the Ninth Circuit's recent decision against the company.
  • Geofencing is a viable compliance mechanism; expense does not constitute impossibility for conflict preemption purposes.

The Sixth Circuit handed state gambling regulators a major win Friday, ruling that prediction market operator Kalshi's sports-event contracts do not qualify as federally protected "swaps" under the Commodity Exchange Act and are therefore subject to state gaming enforcement.

The unanimous decision by a three-judge panel affirmed a Southern District of Ohio order denying Kalshi a preliminary injunction against Ohio's Casino Control Commission and vacated a Middle District of Tennessee order that had enjoined Tennessee's Sports Wagering Council from taking action against the company. Judge Julia Smith Gibbons wrote for the court, joined by Judges Clay and Bloomekatz.

"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,'" Judge Gibbons wrote. "And, even assuming that Kalshi's sports-event contracts are swaps, we alternatively hold that the CEA neither expressly nor impliedly preempts Ohio's or Tennessee's gambling laws."

The ruling resolves a circuit split that had developed after the Third Circuit ruled in Kalshi's favor earlier this year in a case involving New Jersey regulators, while the Ninth Circuit affirmed a Nevada district court's decision against the company in August.

Kalshi operates a designated contract market registered with the Commodity Futures Trading Commission, offering event contracts on outcomes including which teams will advance in NCAA tournaments and how many corner kicks will be taken in a soccer game. State regulators in Ohio and Tennessee sent cease-and-desist letters, asserting that the contracts violated their gambling laws. Kalshi sued in both states, seeking declaratory judgments that state gambling laws were preempted by federal law.

The district courts reached opposite conclusions. The Southern District of Ohio denied Kalshi's preliminary injunction motion, while the Middle District of Tennessee granted it, finding that Kalshi's contracts were likely swaps entitled to federal preemption.

At the heart of the Sixth Circuit's analysis was the statutory definition of a swap. The CEA defines a swap in part as an agreement providing for payment dependent on "the occurrence... of an event" that is "associated with a potential financial, economic, or commercial consequence." Kalshi argued this language should be read broadly to cover any contract related to an industry with downstream economic effects.

The court rejected that interpretation. Judge Gibbons wrote that for an event to be "associated with a potential financial, economic, or commercial consequence," it must be "intrinsically associated with a financial consequence such that we can reasonably understand why hedging financial risk or ascertaining pricing information for the occurrence of that event would be desired and beneficial." A change in interest rates would meet this test; who is named Super Bowl MVP would not.

The court found Kalshi's broad reading would lead to troubling consequences. The CEA makes it generally unlawful to enter into a swap except on a federally regulated market. If sports bets were swaps, "they must take place on federal markets," the court observed, which "would thus expose countless Americans to potential criminal liability for partaking in even the most unsophisticated, off-DCM gambling activity."

During oral argument, Kalshi struggled to explain how some of its contracts could be associated with financial consequences. The court was unpersuaded. "But if we—or a 'layperson'—cannot discern that a sports-event contract has potential economic consequences, then it would be a stretch to say such a contract is 'associated' with potential economic consequences," Judge Gibbons wrote.

Even assuming Kalshi's contracts were swaps, the court held the CEA would not preempt state gambling laws. The court interpreted the CEA's exclusive jurisdiction provision narrowly to displace only "direct enforcement and regulatory authority pertaining to the licensing and operation of DCMs." State laws that "only incidentally burden DCMs or on-DCM transactions involving swaps" are not preempted.

The court rejected field preemption, finding the CEA's multiple savings clauses signal Congress did not intend to occupy the entire field. On conflict preemption, Kalshi argued that federal regulations requiring "impartial access" to DCM markets conflicted with state laws. The court found no impossibility, noting that other companies have complied with both requirements by using geofencing.

The ruling lands as prediction markets have expanded rapidly since the Supreme Court struck down the Professional and Amateur Sports Protection Act in 2018, freeing states to legalize sports gambling. A majority of states have now done so, generating more than $3.2 billion in tax revenue in fiscal year 2025 alone. William E. Havemann of Milbank LLP argued for Kalshi, while Mathura J. Sridharan of the Office of the Ohio Attorney General represented the states.

The case now returns to the district courts for further proceedings.