Sixth Circuit Allows States to Regulate Sports Contracts

Kalshi has suffered another key courtroom loss.

The US Court of Appeals for the Sixth Circuit ruled that Tennessee and Ohio can enforce their gambling laws on Kalshi’s sports prediction markets. It rejected the industry-leading operator’s argument that the Commodity Exchange Act (CEA) preempts state gambling laws, finding it failed to meet the “burden of proof.”

The ruling aligns with the Southern District of Ohio's decision, which Kalshi appealed to the Sixth Circuit. 

“This is a great win for Tennessee,” Tennessee Attorney General Jonathan Skrmetti shared in a press release. “Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling.  They failed,” said Attorney General Jonathan Skrmetti. “Sports wagering is heavily regulated because it can do a lot of harm, and I’m glad we thwarted Kalshi’s efforts to remove every safeguard and put Tennessee sports bettors at risk. I’m proud of our outstanding team for defending Tennessee’s right to set its own rules.”

Kalshi is already preparing for a showdown at the US Supreme Court after the Ninth and Third Circuits issued conflicting rulings. However, the Sixth Circuit's failure shows momentum is building against the operator.

SCOTUS Will Focus On Two Arguments

If Kalshi and its prediction peers want to avoid state regulation, they’ll need to convince SCOTUS on two separate arguments.

The first argument is that the CEA actually covers sports contracts. The law doesn't mention them anywhere, but the Commodity Futures Trading Commission has deemed the offering covered. Given the similarities to traditional sports betting, Kalshi’s legal team will need to clearly show the two industries differ enough to fall into different categories.

Support from the CFTC could help with this argument, but it's only half the battle for Kalshi.

If and when Kalshi establishes that its sports contracts fall under the CEA, it will then need to convince the court that the law preempts state gambling laws. This is a much harder argument to prove, and it has led to several crucial legal losses in recent months.