The Sixth Circuit ruled on Sept. 25 that Ohio and Tennessee can enforce state gambling laws against Kalshi's sports prediction contracts, dealing a major legal setback to the exchange's claims of exclusive Commodity Futures Trading Commission (CFTC) oversight.
Sixth Circuit Rejects Exclusive CFTC Preemption
The unanimous judicial panel held that Kalshi failed to prove its sports contracts qualify as swaps under the Commodity Exchange Act. Furthermore, the court issued an alternative holding stating that even if the contracts were classified as swaps, federal commodities laws do not preempt Ohio and Tennessee state gambling statutes. The ruling affirmed an Ohio decision against Kalshi, vacated a preliminary injunction shielding it in Tennessee, and established a legal precedent governing federal courts across Ohio, Tennessee, Michigan, and Kentucky.
The court also dismissed Kalshi's argument that implementing geographic access controls would violate its designated contract market obligations to provide national order matching. Addressing the exchange's complaints regarding technical expenses, the judges noted that expensive compliance does not equal impossibility. In Michigan, a Sept. 1 state-court injunction already mandates geofencing with daily violation penalties reaching up to $500,000.
Key Takeaways
- The Sixth Circuit ruled Sept. 25 that Ohio and Tennessee can enforce state gambling laws against Kalshi.
- Eilers & Krejcik Gaming (EKG) estimates 69% of Kalshi's retail sports demand stems from states without legal online sportsbooks, with California and Texas accounting for 44%.
- Sports contracts generated over 90% of Kalshi's trades and 95% of its revenue in 2025.
- States collected more than $3.2 billion in sports-gambling tax revenue in fiscal 2025.
Exposure Across Unlicensed Sportsbook States
The appellate defeat threatens the core customer base of prediction markets. According to July modeling from research firm Eilers & Krejcik Gaming (EKG), 69% of Kalshi's retail sports demand originates in states without legal online sportsbooks, led by California and Texas at 44%. EKG estimates prediction markets replaced only 2% to 4% of sportsbook volume in states with legal betting, indicating that platform growth has relied primarily on expanding access to unregulated jurisdictions.
This legal pressure directly targets Kalshi's primary revenue driver. Citations in a Ninth Circuit August opinion revealed that sports contracts accounted for more than 90% of Kalshi's total trades and 95% of its revenue in 2025. The state-level pushback comes as local authorities move to protect regulated revenue streams, with states collecting over $3.2 billion in sports-gambling tax revenue in fiscal 2025.
Why It Matters
This ruling marks a critical turning point for derivative platforms attempting to bypass state-level gambling restrictions using federal commodity designations. As courts reject federal preemption arguments, prediction markets face shrinking addressable user bases and rising compliance costs for state-by-state geofencing. Investors and market participants must watch whether the Fifth Circuit aligns with the Sixth Circuit and Ninth Circuit decisions, which could force tokenized and cash-settled prediction markets into state regulatory frameworks much like broader EU regulators pushing to enforce strict oversight or federal court decisions upholding state oversight.
