The federal shield was never as solid as the sales pitch
For two years the prediction market argument ran roughly like this: we hold a federal designation, our products are derivatives, and therefore state gambling law simply does not reach us. On September 25, 2026, a Friday, the 6th Circuit ruled that states can do exactly what that pitch said they could not. A unanimous three-judge panel of the 6th US Circuit Court of Appeals in Cincinnati held that Ohio and Tennessee may apply their gambling laws to Kalshi’s sports-related event contracts.
The panel’s reasoning came in two layers, which matters more than the headline. First, it found Kalshi had not shown that its sports-event contracts meet the statutory definition of a “swap,” so they do not fall inside the Commodity Futures Trading Commission’s exclusive jurisdiction. Second, and independently, the court said that even if the contracts were swaps, the Commodity Exchange Act does not preempt the two states’ gambling laws, expressly or by implication. Two holdings, either one sufficient. That is a court closing a door and then locking it.
Procedurally, the decision vacated a preliminary injunction that a Tennessee federal judge had issued to block enforcement of state gambling law against Kalshi, and upheld the denial of a similar injunction in Ohio. Judge Julia Smith Gibbons wrote for the panel.
The claim versus what the panel actually held
Much of the commentary around prediction markets collapses distinct legal questions into one. The opinion keeps them apart:
| The argument made | What the 6th Circuit held |
|---|---|
| Sports event contracts are swaps | Kalshi “has not shown” they satisfy the statutory definition of a swap |
| The CFTC therefore has exclusive jurisdiction | Exclusive jurisdiction was not established, because the swap question failed |
| The Commodity Exchange Act preempts state gambling law | Neither express nor implied preemption, even assuming the contracts are swaps |
| Courts have blocked state enforcement | Tennessee injunction vacated; Ohio’s denial of an injunction affirmed |
Myth: it cannot be gambling if it trades on an exchange
The panel was unimpressed by the wrapper. Gibbons wrote that swaps generally involve financial measures, indices and instruments used to hedge risk, not gaming-related contracts. As the opinion put it, it is “difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game,” or the outcome of a 30-leg parlay, fits that description.
Anyone who has actually used these products will recognise the point. A 30-leg parlay is not a hedge against anything. It is a long-odds, high-variance bet with a large built-in margin, priced and settled the same way a sportsbook would price and settle it. Calling one side of it a “contract” and the counterparty a “market” changes the paperwork, not the risk profile.
The court also leaned on federalism rather than taxonomy: gambling regulation “lies at the heart of the state’s police power,” Gibbons wrote, noting Congress has left states with primary responsibility for deciding what forms of gambling may take place inside their borders. That framing is the part licensed operators will quote for years, because it does not depend on winning the swap argument at all.
Myth: this ends sports event contracts in the United States
It does not, and anyone claiming otherwise is reading the map wrong. A 6th Circuit ruling binds the courts within that circuit, which covers Ohio, Tennessee, Kentucky and Michigan. Outside it, the legal position depends on whichever court and whichever state you are standing in.
Two further caveats. This was an appeal about preliminary injunctions, the interim orders that decide who gets to act while litigation continues. Vacating one is not a final judgment on the merits, and the underlying cases are not over. And the decision adds to an existing split among federal appeals courts on whether prediction markets answer to state gambling rules or to federal derivatives regulation. A split is not a resolution. It is the condition that usually precedes one.
What has changed, concretely, is leverage. Ohio and Tennessee regulators now have appellate authority behind their cease and desist powers rather than an injunction pointed at them. That is a materially different negotiation.
Myth: the split will be tidied up shortly
The available routes are a rehearing before the full circuit, a petition to the Supreme Court, or federal action that redefines the boundary, whether through legislation or CFTC rulemaking. None of those is fast, and none is guaranteed to happen at all. Operators planning around an imminent national answer are planning around a hope.
The more realistic near-term picture is patchwork: event contracts on sports available in some states, contested in others, withdrawn in a few. For affiliates and content teams, that means geography-aware compliance rather than a single national stance, and it means treating “regulated” as a question about which regulator, in which state, on what theory.
Myth: licensed sportsbooks are only complaining about competition
They are complaining about competition, but the asymmetry they point to is real and measurable. A licensed sportsbook in Ohio or Tennessee pays for its licence, pays state tax on its revenue, geofences its product, verifies the age and identity of every customer, funds problem gambling programmes, and operates under advertising rules with teeth. An exchange offering economically similar exposure under a federal designation carries a different and generally lighter set of state-level obligations.
Whether that gap should be closed by pulling exchanges into state gambling law or by loosening the rules on sportsbooks is a policy argument. The 6th Circuit did not settle it. What the panel did settle, within its circuit, is that the gap cannot be defended simply by pointing at the Commodity Exchange Act.
What to watch, and what it does not change
Three things are worth tracking: whether Kalshi seeks rehearing or Supreme Court review, whether attorneys general in other 6th Circuit states now move on the strength of this opinion, and whether other circuits sharpen or soften the split with their own rulings. Anything a state does next will be a matter of public record, so treat unsourced claims about market exits with scepticism.
For the person actually placing the trade, the maths has not budged. Event contracts on sports carry a spread and fees, the same way sportsbook odds carry a margin, and the long-run expectation for the customer is negative in both cases. A ruling about which government gets to regulate a product says nothing about whether the product is a good bet. If you use these markets, set deposit and loss limits, keep stakes to money you can afford to lose, and use the self-exclusion and cool-off tools your provider offers.
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