Sixth Circuit Rules Tennessee and Ohio Gambling Laws Apply to Kalshi Sports Contracts

The U.S. Court of Appeals for the Sixth Circuit ruled Friday that Tennessee and Ohio can enforce their gambling laws against Kalshi. A unanimous panel of Julia Smith Gibbons, Eric Clay, and Rachel Bloomekatz rejected the prediction market’s arguments in full. Judge Julia Smith Gibbons wrote the opinion.

The decision resolves appeals from conflicting district court rulings. The Middle District of Tennessee granted Kalshi an injunction in February after finding state law preempted by the federal Commodity Exchange Act (CEA). The Southern District of Ohio denied an injunction a month later, holding that state law was not preempted. The Sixth Circuit sided with the states on both the definition of a swap and the preemption question.

Swap Definition and Economic Consequences

The court held that Kalshi’s sports event contracts do not qualify as swaps under the CEA. It agreed sports results can constitute the “occurrence of an event” but determined they lack the required “potential financial, economic, or commercial consequence.” The opinion states the event must be inherently associated with such consequences, not merely linked through downstream effects like parade spending or Gatorade flavor sales.

“We conclude that ‘associated with’ is best read as requiring that the event be one inherently associated with a ‘financial, economic, or commercial consequence,'” the court said. It found Kalshi’s examples of hedging by an insurance company on Spanish club Osasuna’s relegation and a New York bar on a Knicks game too isolated to establish inherent association. The ruling notes that even Kalshi conceded at argument that certain contracts would be hard for a layperson to connect to economic consequences.

Preemption Holding and Circuit Split

On preemption, the Sixth Circuit applied a presumption against it given gambling’s traditional state domain. It ruled the CEA’s “exclusive jurisdiction” over swaps does not displace state gambling laws, which only incidentally burden designated contract markets. The opinion states it is possible for Kalshi to comply with both federal and state rules through geofencing, despite the cost.

“Our conclusion that Kalshi’s sports-event contracts are not ‘swaps’ ends the analysis because that necessarily means regulation of these contracts does not fall within the CFTC’s ‘exclusive jurisdiction’ and thus that federal law does not preempt application of the States’ gambling laws,” the court said. The decision joins the Ninth Circuit against Kalshi and conflicts with an April Third Circuit ruling in its favor. According to reporting by InGame, this development brings Supreme Court review closer, with related petitions already pending.

The outcome clears the path for Ohio, Tennessee, and Kentucky to impose bans. Michigan, also in the Sixth Circuit, has already done so.

Reporting: InGame

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