The Sixth Circuit Court ruled that Kalshi's sports contracts are regulated by state law, not federal law, marking a significant development in the prediction market landscape.
The Sixth Circuit Court of Appeals has determined that Kalshi's contracts tied to sports events do not qualify as swaps, thus placing them under the jurisdiction of state regulations rather than federal oversight from the Commodity Futures Trading Commission (CFTC).
Ruling Details
This latest ruling is part of an ongoing legal dispute between prediction market operators and state regulators, which may prompt the U.S. Supreme Court to take action on the matter.
The decision arose from two lawsuits filed by Kalshi against regulators in Ohio and Tennessee, where the company sought to block state actions against its operations. While a federal court in Ohio denied Kalshi’s request, a Tennessee court ruled in its favor.
States have been pushing for regulation of prediction markets, arguing that they compete directly with state-sanctioned gambling platforms and do not contribute to state tax revenues. Additionally, many states have age restrictions for gambling, typically requiring participants to be 21, while prediction markets often allow participation from those as young as 18.
The three-judge panel acknowledged Kalshi's right to pursue legal action but disagreed with its classification of contracts as swaps subject to federal regulation. The ruling emphasized that while Kalshi's contracts are based on events, they do not meet the statutory definition of swaps associated with financial, economic, or commercial consequences.
The court's ruling referenced examples such as the New York Giants winning the Super Bowl, illustrating how the interpretation of events can vary based on definitions. The judges noted that the statutory text does not impose limitations on how events are defined, allowing for broader interpretations.
This ruling adds to existing case law, contrasting with earlier decisions from other circuits regarding the jurisdiction of prediction markets. The Third Circuit has affirmed CFTC oversight, while the Eighth Circuit has sided with Kalshi, asserting that sports-related contracts do not constitute swaps. This split among circuit courts could lead to a Supreme Court review, particularly since an appeal from the Third Circuit is already pending.
