Kalshi experiences setback in appeals case: Can states label prediction markets as gambling?

The Sixth Circuit ruled against Kalshi in Ohio and Tennessee a month after another appeals court sided with Nevada. New Jersey still has a conflicting ruling. The question for a national market is now practical as well as legal: can an exchange offer the same sports contract across state lines when its federal registration does not necessarily protect it from state gambling law?

Summary

A three-judge Sixth Circuit panel ruled on Sept. 25 in two cases involving Ohio and Tennessee.

The ruling affirmed one denied injunction in Ohio and vacated one granted injunction in Tennessee.

Three federal appellate circuits have now addressed sports contracts, with the Third Circuit on the other side.

According to the opinion, Ohio and Tennessee each set 21 as the minimum age for sports wagering.

Kalshi self-certified sports contracts on Jan. 22, 2025; neither state has issued it a gaming license.

An Ohio resident wanting to buy a Kalshi contract on a basketball game faces a different legal position than a New Jersey resident purchasing the same contract. The exchange and the payoff can be identical. The state line is what changes. On Sept. 25, the federal appeals court covering Ohio and Tennessee concluded that Kalshi had not demonstrated that its sports products were shielded from the gambling laws of those states.

The 49-page Sixth Circuit opinion, in the consolidated cases KalshiEX LLC v. Schuler and KalshiEX LLC v. Orgel, outlines two separate reasons. Its three judges stated that Kalshi had not established that the sports contracts qualified as swaps under the Commodity Exchange Act. They then assumed, for the sake of argument, that the contracts were swaps, and still found that the federal statute did not displace the gambling rules of Ohio and Tennessee. One answer concerns the product, and the other concerns the boundary between two governments.

Neither ruling signifies a final nationwide ban on sports prediction markets. Both cases pertain to preliminary injunctions, meaning orders that would prevent state officials from enforcing their laws during litigation. The panel upheld Ohio’s denial, removed Tennessee’s protection for Kalshi, and sent both cases back to lower courts. Kalshi remains a federally registered exchange, but registration alone did not secure these specific motions.

Two states entered the appeal with opposing outcomes.

Kalshi registered as a designated contract market with the Commodity Futures Trading Commission in 2020. On Jan. 22, 2025, it self-certified sports event contracts and began listing them. The opinion describes markets covering tournament results, golf, soccer statistics, and combinations of player and game outcomes. A trader buys a yes or no position that pays based on the specified result. Kalshi had previously offered contracts on climate, economics, elections, and crypto. The September decision concerns sports.

Ohio’s Casino Control Commission cautioned Kalshi that it was offering sports products without a state license. The regulator raised its 21-year minimum and alleged that individuals below that age could access the exchange. These claims come from the commission’s allegations recorded in court, not an independent determination of underage customer trading. Kalshi asserted that its federal exchange status allowed it to offer contracts nationwide and sued to prevent enforcement, but an Ohio district judge denied a preliminary injunction.

Tennessee’s Sports Wagering Council issued its own cease-and-desist letter. Kalshi again sued, but a Tennessee district judge granted protection against state officials. The state appealed. In one federal circuit, the same legal theory yielded one order allowing enforcement and another restraining it. The appellate panel heard the cases together and resolved both on Sept. 25, affirming Ohio’s refusal and vacating Tennessee’s injunction.

The distinction between an injunction and the subsequent merits is important. The panel assessed whether Kalshi had demonstrated a likelihood of success adequate to halt the states now. The underlying suits have been remanded. An operator seeking guidance today cannot treat a ruling on temporary protection as a final trial judgment, yet a state that is no longer restrained can pursue its existing rules. A later appeal, rehearing, or Supreme Court decision could change the circumstances.

Kalshi spokesperson Dani Lever told Reuters that the company anticipates the ruling will undergo further review and argued that differing regulations at state borders undermine a national market. The company has a valid point: a single electronic order book runs smoother when eligibility for a contract does not shift based on each customer’s location. The appellate judges acknowledged that compliance could incur costs but did not view these costs as evidence that federal law prohibits state restrictions.