CINCINNATI: A US appeals court on Friday ruled against prediction markets operator Kalshi, allowing Ohio and Tennessee to regulate its event contracts under state gambling laws.
The decision by the 6th US Circuit Court of Appeals deepens a split among federal appeals courts over regulation of the growing prediction market industry.
The disagreement centres on whether state regulators or the federal Commodity Futures Trading Commission (CFTC) should oversee event contracts.
The conflicting rulings could eventually lead the US Supreme Court to settle the issue.
Kalshi said it does not expect Friday’s decision to survive further legal review.
“The ruling shows exactly why a state-by-state patchwork doesn’t work,” Kalshi spokesperson Dani Lever said.
She argued that markets need nationwide rules and a single federal regulator.
Court Rejects Kalshi’s Argument
Prediction markets allow users to wager on the outcomes of events.
Sports are among the most popular markets, but users can also place bets on elections, weather and cultural events such as the Oscars.
Circuit Judge Julia Smith Gibbons wrote for a unanimous three-judge panel that Kalshi failed to show its sports event contracts qualified as “swaps” subject exclusively to CFTC regulation.
She also ruled that the federal Commodity Exchange Act did not prevent Ohio and Tennessee from enforcing their gambling laws.
Gibbons said swaps generally involve financial measures, indices and instruments used to hedge against risks.
She noted that gambling-related contracts serve a different purpose.
“It is, therefore, difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game — or that a 30-leg parlay will hit — would serve (to) advance those goals,” Gibbons wrote.
The judge also said gambling regulation falls within states’ traditional authority to protect public welfare.
Appeals Courts Reach Different Conclusions
Several states, including Ohio and Tennessee, have moved against prediction markets such as Kalshi and Polymarket.
The issue has produced conflicting rulings in other federal appeals courts.
The 9th Circuit in San Francisco ruled last month that Kalshi’s event contracts are subject to Nevada’s gambling laws.
However, the 3rd Circuit in Philadelphia ruled in April that Kalshi’s contracts are not subject to New Jersey’s gambling laws.
New Jersey has asked the Supreme Court to overturn the 3rd Circuit decision.
The differing rulings have increased the possibility of a Supreme Court review.
Kalshi Loses Injunctions
Friday’s ruling vacated a preliminary injunction issued by a Tennessee federal judge against enforcement of the state’s gambling laws.
The appeals court also upheld the denial of a similar injunction sought by Kalshi in Ohio.
Tennessee Attorney General Jonathan Skrmetti welcomed the decision.
“Sports wagering is heavily regulated because it can do a lot of harm, and I’m glad we thwarted Kalshi’s efforts to remove every safeguard and put Tennessee sports bettors at risk,” he said.
The office of Ohio Attorney General Andy Wilson did not immediately respond to requests for comment.
Gibbons was appointed to the appeals court by Republican President George W. Bush.
The three-judge panel also included Circuit Judge Eric Clay, appointed by Democratic President Bill Clinton, and Circuit Judge Rachel Bloomekatz, appointed by Democratic President Joe Biden.
