A unanimous panel held that Kalshi's sports event contracts are not swaps because a game result carries no financial consequence of its own, affirming Ohio's refusal of an injunction and vacating Tennessee's. Three appeals courts have now ruled and Kalshi has won one of them, with New Jersey's petition already waiting at the Supreme Court.
The Sixth Circuit ruled on Friday that Kalshi's sports event contracts are not swaps under the Commodity Exchange Act, a holding that puts them outside the Commodity Futures Trading Commission's exclusive jurisdiction and clears Ohio and Tennessee to enforce their gambling laws against the exchange.
The unanimous panel of Circuit Judges Eric Clay, Julia Smith Gibbons and Rachel Bloomekatz decided two consolidated appeals on September 25: KalshiEX LLC v. Schuler, No. 26-3196, from Ohio, and KalshiEX LLC v. Orgel, No. 26-5235, from Tennessee. Gibbons wrote the opinion. The court affirmed the Southern District of Ohio's refusal to grant Kalshi a preliminary injunction and vacated the Middle District of Tennessee's order blocking state enforcement, returning the Tennessee case to the district court.
The dispute turned on a single clause. Under 7 U.S.C. 1a(47)(A)(ii), a swap includes an agreement, contract or transaction that depends on the occurrence, nonoccurrence or extent of occurrence of an event associated with a potential financial, economic or commercial consequence. The panel accepted that Kalshi's contracts are agreements and that the result of a game is an event. The contracts failed the third requirement.
Gibbons wrote that the event has to be intrinsically associated with a financial consequence, in the sense that the link is clear enough that hedging financial risk against the event, or taking pricing information from it, makes sense. The opinion offers a change in interest rates as the kind of event that qualifies. Sports results do not. Kalshi's contracts, the panel wrote, "have only downstream economic consequences, assuming they have the potential to cause economic consequences at all."
Kalshi had argued that a game result moves money through sponsors, advertisers and broadcasters, and that this is consequence enough. The court called those effects too attenuated, indirect and speculative to satisfy the statute.
The panel then assumed the opposite and arrived in the same place. Even if the contracts were swaps, it held, the Commodity Exchange Act does not preempt Ohio's or Tennessee's gambling laws. The exclusive jurisdiction clause at 7 U.S.C. 2(a)(1)(A) does not use the words preempt or supersede that appear elsewhere in the act, and because states have regulated gambling for so long the panel applied the presumption against preemption. The act's savings clauses defeated the argument for field preemption, and the court found no actual conflict between federal regulation of swaps and state regulation of instruments that are not swaps.
The panel gave a practical reason for reading the definition narrowly. On Kalshi's construction, it reasoned, ordinary off-exchange betting would be pulled into 7 U.S.C. 2(e), which bars trading swaps away from a registered exchange, exposing a large number of Americans to criminal liability. A definition carrying that consequence, the court concluded, is unlikely to be the one Congress wrote.
The test is written in terms of events rather than sports. Within the Sixth Circuit it therefore applies to event contracts generally: any contract whose underlying event produces no more than indirect commercial effects fails it on the same reasoning. The opinion does not say which other products those would be.
Three courts of appeals have now ruled and Kalshi has won one. The Third Circuit sided with the exchange 2-1 in April in the New Jersey case. In August the Ninth Circuit directly contradicted that decision in the case Kalshi brought against Nevada regulators. Friday's ruling makes the tally two circuits to one against the exchange, and the Fourth Circuit has yet to decide Maryland's appeal.
None of that changes the timetable at the Supreme Court. New Jersey's petition asking whether Dodd-Frank preempts state sports betting law arrived on September 2, and Kalshi's response is due November 9, which keeps the case off the justices' conference list until late November at the earliest. The justices have not said whether they will hear it. Congress has been looking at the same question. Senate Banking Democrats asked for a public hearing on prediction markets last week after a Republican-only roundtable with Kalshi's chief executive.
Tennessee Attorney General Jonathan Skrmetti called the decision a great win for Tennessee. Kalshi's spokesperson, Dani Lever, told Courthouse News that the ruling shows a state-by-state patchwork does not work and that the courts cannot agree on the basics. Ohio's attorney general did not comment immediately.
The immediate change is in Tennessee. The injunction that had kept state regulators away from Kalshi since February is gone, and the case goes back to the district court without it.
