Sixth Circuit Rules Against Kalshi, Deepening US Prediction Market Split
A United States Court of Appeals has ruled that prediction market KalshiEX's sports-event contracts do not qualify as federally regulated "swaps", creating a starker conflict among appellate courts over whether such products are financial derivatives or a form of gambling subject to state law.
- The US Sixth Circuit Court of Appeals held that KalshiEX failed to show its sports contracts are "swaps" under the Commodity Exchange Act (CEA).
- The court also found that even if the contracts were swaps, the CEA would not preempt state gambling laws in Ohio and Tennessee.
- The ruling directly contradicts a Third Circuit decision, deepening a circuit split and increasing the likelihood of a US Supreme Court review.
A recent decision by the US Court of Appeals for the Sixth Circuit has dealt a significant blow to prediction market operator KalshiEX LLC. In a ruling dated 25 September 2026, the court determined that the company had not successfully demonstrated that its sports-based event contracts are "swaps" as defined by the Commodity Exchange Act (CEA). The court further held that even if the products were considered swaps, federal law would not override state-level gambling legislation in Ohio and Tennessee. The judgment affirms the denial of a preliminary injunction in Ohio and vacates a similar injunction that had been granted in Tennessee.
A Deepening Circuit Split
The case, KalshiEX LLC v. Schuler, centred on the legal definition of a swap under federal commodities law. The Sixth Circuit's conclusion intensifies a growing division among US appellate courts on how to classify and regulate prediction markets. The ruling aligns with an August 2026 decision from the Ninth Circuit in KalshiEX LLC v. Assad, which also found that the contracts were unlikely to be swaps and dissolved an injunction related to them.
However, these findings are in direct opposition to a judgment from the Third Circuit. In April 2026, that court held in KalshiEX, LLC v. Flaherty that the sports contracts were indeed swaps and affirmed a preliminary injunction preventing New Jersey from taking enforcement action. This conflict across different federal circuits creates significant legal uncertainty for the operator. Kalshi, which is regulated by the Commodity Futures Trading Commission (CFTC) as a designated contract market, began self-certifying its sports-event contracts in January 2025 and has pursued legal action in multiple jurisdictions with varying degrees of success.
Broader Legal Landscape
The legal battles extend beyond the appellate level, with trial courts also reaching divergent outcomes. In New York and Maryland, federal courts denied Kalshi's requests for injunctions, even while assuming for the sake of argument that the contracts were swaps. Both of these cases, KalshiEX LLC v. Williams and KalshiEX LLC v. Martin, are currently under appeal in their respective circuits. Conversely, a federal court in Minnesota preliminarily enjoined a broader state ban on prediction markets, citing express preemption by federal law.
The CFTC, the primary federal regulator for derivatives, has consistently supported Kalshi's position in court filings. The commission has argued as an amicus curiae, or friend of the court, that the sports contracts are swaps and that the CEA should preempt state laws under express, field, and conflict preemption doctrines. In a notable move, the Sixth Circuit denied the CFTC’s request to participate in oral arguments and ultimately rejected its proposed legal interpretation.
The contradictory rulings have set the stage for a potential showdown at the nation's highest court. As of 1 October 2026, a petition from the state of New Jersey for the US Supreme Court to review the favourable Third Circuit decision remained pending. The subsequent contrary rulings from the Ninth and Sixth Circuits make it more probable that the Supreme Court will agree to hear the case to resolve the fundamental legal question of whether these event contracts are financial instruments or wagers.
