6th Circuit Rejects Kalshi Argument That Sports Event Contracts Qualify as CFTC Swaps

The U.S. Court of Appeals for the 6th Circuit ruled against Kalshi Friday, deepening a federal circuit split over whether prediction markets for sports events qualify as federally regulated swaps or remain subject to state gambling laws. The decision raises the odds that the U.S. Supreme Court will grant review to resolve the conflict.

The panel held that sports event contracts fail the statutory test for swaps under the Commodity Exchange Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It further concluded that even if the contracts did qualify, the CEA does not preempt traditional state authority over gambling regulation.

Why Sports Event Contracts Are Not Swaps

Judge Julia Smith Gibbons, joined by Judges Eric L. Clay and Rachel S. Bloomekatz, wrote that a qualifying event must be inherently associated with potential financial, economic, or commercial consequences that promote market stability. Gibbons contrasted interest-rate fluctuations, which carry direct hedging value, with the naming of a Super Bowl MVP, whose economic effects arise only indirectly through later sponsorship deals or bonuses.

The opinion noted that extending CFTC jurisdiction over such contracts “bear no relation to the goals Congress had in mind” when it enacted the CEA in 1936 to address commodity-price volatility in agriculture. Examples such as teams hedging performance bonuses or bars offering drinks if the Knicks win fall outside that framework, according to reporting by Sportico.

The 6th Circuit added that the CEA’s exclusivity language more likely excludes court jurisdiction than bars states from legislating in an area historically reserved to them.

Heightened Prospect of Supreme Court Resolution

This ruling aligns the 6th and 9th Circuits against the 3rd Circuit, which previously held that the CEA preempts state gambling enforcement against sports event contracts. The Supreme Court is already considering review of the 3rd Circuit decision in Kalshi v. Flaherty. A clearer split now makes plenary review more likely, leaving prediction market operators with inconsistent legal treatment across jurisdictions until then.

CME Group CEO Terry Duffy captured the unease, stating verbatim: “I really believe it’s 2007. The housing market has been supplanted by the speculation market, including predictions and everything else, and this could be a disaster waiting to happen.”

Reporting: Sportico

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