The injunction that had kept Tennessee’s gambling laws off Kalshi’s back is gone. A three-judge panel of the 6th U.S. Circuit Court of Appeals, sitting in Cincinnati, vacated it in late September 2026 and upheld an Ohio court’s refusal to grant a similar block. The practical result of the Kalshi sports contracts ruling: both states may apply their gambling statutes to the sports event contracts Kalshi lists, and Kalshi’s claim that only the federal derivatives regulator can touch them did not survive.
For anyone tracking where prediction markets end and sportsbooks begin, this is the most consequential answer yet from a federal appeals court. It is also not the final one, because the circuits are no longer saying the same thing.
What did the court actually rule?
Two holdings, either of which would have been enough on its own.
First, the panel found that Kalshi had not demonstrated its sports event contracts meet the statutory definition of a “swap,” which is the gateway to the Commodity Futures Trading Commission’s exclusive jurisdiction. In the court’s words: “We hold that Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a ‘swap’ so as to fall within the scope of the CFTC’s ‘exclusive jurisdiction.'”
Second, and framed explicitly as an alternative, the panel said that even if the contracts were swaps, federal law would still not clear the states out of the way: “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.”
That second point is the harder one for Kalshi to engineer around. A company can restructure a product to look more like a swap. It cannot restructure its way out of a holding that the Commodity Exchange Act leaves state gambling law intact regardless.
Judge Julia Smith Gibbons, writing for the unanimous panel, drew the line along function. Swaps, she reasoned, generally involve financial measures, indices and instruments used to hedge risk. Gaming-related contracts are a different animal. She also leaned on federalism: “Gambling regulation ‘lies at the heart of the state’s police power,'” Gibbons wrote, noting that Congress has given states primary responsibility for deciding what forms of gambling may take place inside their borders. The opinion made the point with a jab that will be quoted for years, asking how determining the probability that a certain number of corner kicks will be taken in a soccer match, or that a 30-leg parlay will come in, fits the risk-hedging purpose the swap rules were written for.
What is Kalshi, and how do sports event contracts work?
Kalshi is an event contract exchange registered with and overseen by the CFTC. Its entire legal architecture rests on that federal status: it argues it is a derivatives venue, not a gambling operator, and therefore answers to one federal regulator rather than fifty state gaming commissions.
The mechanics
A sports event contract is a binary instrument tied to a verifiable outcome. The contract settles at $1 if the stated event happens and $0 if it does not. Prices between those poles are quoted in cents and read as implied probability: a contract trading at 62 cents implies roughly a 62% chance the market assigns to that outcome.
Two features distinguish this from placing a wager at a sportsbook. You are matched against another trader rather than against the house, with the exchange taking fees instead of building in a margin. And you can exit before settlement by selling your position at the prevailing price, locking in a profit or cutting a loss mid-game.
Prediction market or bet?
That is the whole fight, and it is a fight about substance versus form. Tell a trader that selling a position at 70 cents after buying at 45 is portfolio management, and they will nod. Tell a bettor that buying a contract on whether a team covers is not betting on a game, and they will laugh. The 6th Circuit, in effect, sided with the second instinct for sports specifically: the economic function of a contract on corner kicks or a multi-leg parlay outcome is not risk hedging, so the derivatives framing does not automatically control.
Here is how the two models compare on the dimensions regulators care about:
| Feature | Sports event contract (exchange) | Traditional sportsbook bet |
|---|---|---|
| Counterparty | Another trader, matched on the exchange | The operator (the house) |
| Operator revenue | Trading and settlement fees | Margin built into the odds |
| Pricing display | Cents per contract, read as implied probability | Decimal, fractional or American odds |
| Exiting early | Sell the position at market price | Only if the operator offers a cash-out |
| Primary regulator claimed | CFTC, under the Commodity Exchange Act | State gaming regulator, licence by licence |
| Status after this ruling (OH, TN) | Exposed to state gambling law | Unchanged |
Why can states regulate Kalshi after this decision?
Because the panel removed the shield Kalshi had been holding up. Exclusive federal jurisdiction only bites if the product sits inside the federal category, and the court said Kalshi had not carried its burden of showing that it does. Strip that away and you are back to the default: gambling is policed by the states under their police power, and a contract whose payout turns on a sporting result can be measured against each state’s gambling statutes.
Concretely, in Ohio and Tennessee that means state authorities are no longer enjoined from enforcing those statutes against Kalshi’s sports listings. Enforcement can look like cease-and-desist letters, demands that the product be geofenced out of the state, licensing requirements, or civil action for unlicensed operation. The court did not declare the contracts illegal; it cleared the path for states to decide that question under their own law. Nothing in the opinion disturbs Kalshi’s federal registration or its non-sports markets.
The change from the prior posture matters. Before, the operating assumption on the Kalshi side was a single federal rulebook with national reach. After, sports event contracts face the same state-by-state map that sportsbook operators have worked under since 2018 — with the added complication that a court in one circuit may read the preemption question differently from a court in another.
What does this do to the prediction markets versus betting distinction?
It narrows it, at least for sports. The reasoning on swaps gives future courts a functional test to apply rather than a label to accept: does the instrument do the work that derivatives regulation exists to supervise, namely hedging and price discovery on financial or commercial exposures? Election markets, interest rate markets and weather contracts have plausible answers to that. A contract on a 30-leg parlay has a harder time.
The alternative holding on preemption cuts deeper, because it decouples the outcome from the classification entirely. If other circuits adopt it, then an operator could win the argument that its product is a swap and still lose the argument that state gambling law has to step aside. That is a structurally weaker position than the industry has been assuming.
What it does not do is settle anything nationally. The decision adds to a growing split among federal appeals courts over whether prediction markets answer to state gambling rules or federal derivatives regulation, and splits of that kind are the classic reason the Supreme Court takes a case. Until that happens, the law genuinely depends on which circuit you are standing in.
What this means for Kalshi and platforms like it
In the short term, Kalshi’s realistic options in these two states are compliance, withdrawal of the contested listings, or continued litigation while exposed to enforcement. Further appellate review is the obvious move, and a circuit split is the strongest ticket to it.
The wider read is about planning assumptions across the sector. Operators building sports-adjacent event contracts can no longer treat a CFTC registration as a national licence. Legal risk now has to be mapped jurisdiction by jurisdiction, product by product, with sports treated as the most exposed category and non-sports markets as comparatively insulated. Expect more careful product scoping, more geofencing, and more attention to how a contract is described in its own terms sheet, because courts are now reading function rather than vocabulary.
There is a competitive angle too. Licensed sportsbooks have argued for years that event contract venues reach the same customers without the same tax, licensing and responsible-gambling obligations. This ruling hands them a usable precedent, and state regulators a usable one as well.
For individual traders, the honest framing is the one that applies to any wager on a sporting outcome: these are speculative positions with real downside, fees and spreads work against you over time, and a market price is an estimate of probability, not a forecast of your result. Set limits you can live with, and treat money put into these markets as money at risk. If gambling is causing harm, support lines and self-exclusion tools exist in most jurisdictions and are worth using early rather than late.
What to watch next: whether Kalshi seeks further review, how quickly Ohio and Tennessee move on enforcement, and whether any other appeals court picks up Gibbons’ preemption reasoning. That third one is the tell. If it spreads, the question stops being whether sports event contracts are swaps and becomes whether any federal framing can keep state gambling law at bay.