Appeals Court Rules Prediction Markets Can Be Regulated Like Gambling

What Happened

The 6th US Circuit Court of Appeals ruled against Kalshi, a prediction market platform, on Friday, September 25, 2026, determining that states can regulate prediction markets like gambling.

The unanimous decision by the three-judge panel sided with Ohio and Tennessee, finding that Kalshi did not show its sports-event contracts are 'swaps' that typically fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC).

According to the ruling, states have the right to regulate sports-related event contracts on prediction market platforms, marking a significant blow to the industry.

What the Evidence Establishes

The evidence establishes that the 6th Circuit Court's decision is based on the notion that Kalshi's sports-event contracts do not satisfy the statutory definition of a 'swap' and therefore do not fall within the scope of the CFTC's exclusive jurisdiction.

The court's opinion states that 'even assuming that Kalshi's sports-event contracts are swaps, we alternatively hold that the CEA neither expressly nor impliedly preempts Ohio's or Tennessee's gambling laws.'

This decision is supported by the fact that the CFTC has sued nine states to defend its exclusive right to regulate event contracts, but the 6th Circuit panel rejected this notion.

Where the Accounts Conflict

The accounts of Kalshi and the states conflict on the issue of whether sports-related event contracts on prediction market platforms constitute gambling or swaps.

Kalshi argues that all event contracts are swaps, a type of financial derivative that is regulated by the CFTC, while states assert that these contracts amount to gambling and should be regulated by their laws related to sports betting.

The 6th Circuit Court's decision resolves this conflict in favor of the states, allowing them to regulate prediction markets like gambling.

However, the 3rd US Circuit Court of Appeals previously ruled against New Jersey in April, stating that the CFTC has the exclusive right to regulate all swaps, regardless of contract type.

Context and Stakes

The context of this decision is a broader legal battle between states and prediction market platforms over the regulation of sports-related event contracts.

The stakes are high, as the outcome of this battle will determine whether states or the federal government have the authority to regulate prediction markets.

If states are allowed to regulate prediction markets like gambling, it could lead to a patchwork of different laws and regulations across the country, potentially stifling the growth of the industry.

On the other hand, if the federal government is granted exclusive jurisdiction over prediction markets, it could lead to a more uniform regulatory framework, but one that may be less stringent than what states would impose.

What to Watch Next

What to watch next is whether the Supreme Court will take up the case, potentially resolving the conflict between the 6th and 3rd Circuit Courts.

New Jersey has already appealed the 3rd Circuit Court's decision to the Supreme Court, and it is unclear whether the Court will hear the case.

Additionally, the CFTC's lawsuits against nine states to defend its exclusive right to regulate event contracts are still pending, and the outcome of these cases will have significant implications for the industry.

Kalshi and other prediction market platforms will likely continue to challenge state regulations in court, and the industry will be watching closely to see how these cases unfold.

Bottom Line

The bottom line is that the 6th Circuit Court's decision is a significant blow to the prediction market industry, allowing states to regulate sports-related event contracts like gambling.

This decision has significant implications for the industry, potentially leading to a patchwork of different laws and regulations across the country.

As the legal battle between states and prediction market platforms continues, the industry will be watching closely to see how the Supreme Court and lower courts resolve the conflict over regulation.

The outcome of this battle will have significant consequences for the growth and development of the prediction market industry, and it remains to be seen how the industry will adapt to the changing regulatory landscape.