The 6th Circuit Court of Appeals ruled in favor of Ohio and Tennessee against Kalshi on Friday. States can apply their sports betting laws to the platform’s contracts, a second appeal setback that brings the case closer to the Supreme Court.
In brief
- The 6th Circuit ruled that Kalshi’s sports contracts are not “swaps,” these derivatives reserved for the CFTC.
- Ohio and Tennessee can therefore apply their sports betting laws to them.
- Kalshi’s response to the Supreme Court, already submitted by New Jersey, is expected on November 9.
A second appeals court rules in favor of the States
The three judges of the 6th Circuit ruled Friday, September 25, unanimously in favor of Ohio and Tennessee, the latest episode in a legal battle that spans several fronts for Kalshi. The platform hoped to have recognition that its sports contracts are “swaps”, these derivative products that the CFTC, the American policeman of the futures markets, regulates exclusively.
For the court, a swap must be intrinsically linked to a financial consequence, such as a rate increase or a payment default. The fallout from a match is “too tenuous, indirect and speculative”, we read in the text of the decision. The court added a second reason: even in the opposite hypothesis, the federal law would not deprive Ohio and Tennessee of their gaming laws.
Concretely, Ohio emerges strengthened and the injunction which protected Kalshi in Tennessee falls. The cases returned to the lower courts, and the decision became authoritative in Ohio, Tennessee, Michigan and Kentucky.
Courts of appeal divided, the Supreme Court as arbitrator
The conflict has lasted for more than a year. In January, Tennessee already demanded the termination of the sports contracts of Kalshi, Polymarket and Crypto.com. Three courts of appeal have since ruled: the 3rd supported Kalshi in April (New Jersey), the 9th validated Nevada’s position in August, and the 6th joined the States’ camp. The 4th has yet to decide on Maryland.
The Supreme Court is already seized: on September 2, New Jersey asked it to resolve the conflict between circuits, and Kalshi’s response is expected on November 9. State elected officials are urging the Court to take up the matter with an amicus brief, reports Cointelegraph. The CFTC claims the same exclusive jurisdiction and has sued nine states.
For Kalshi, the puzzle of state-by-state regulation
If the case law is confirmed, the platform will have to deal with a mosaic of requirements: licenses, age checks, taxes and geographic blocking. The court brushed aside the cost argument: partitioning its users by state is “technically difficult, time-consuming and costly”, but “costly does not mean impossible”. Michigan already imposes a third-party verified geo-blocking on Kalshi, under penalty of a $500,000 fine per day.
Sports betting accounts for 83% of Kalshi’s volume, and its US traffic has increased by 1,520% in one year. This legal drama is shaking up the news in the United States, without us yet knowing who, the States or Washington, will set the rules for these markets.
Nothing will be decided for several months, but Ohio and Tennessee are now regaining the power to enforce their laws, and each procedure will slightly redraw the map of American sports betting. In Europe too, regulators are toughening their tone against Polymarket and Kalshi.
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