A federal appeals court ruled on Friday, September 25, 2026, that states have the right to enforce local gambling laws against sports prediction contracts. The unanimous ruling against prediction market operator Kalshi marks a significant legal setback for the platform and opens the door for individual states to regulate its operations.
The decision was handed down by a three-judge panel of the 6th U.S. Circuit Court of Appeals in Cincinnati. The court determined that state regulators in both Ohio and Tennessee can apply their state gambling statutes to Kalshi’s offerings.
Reversal of Lower Court Decision
The appellate ruling overturned a previous Tennessee district court injunction that had blocked state regulators from taking action against Kalshi. At the same time, the panel upheld a decision from an Ohio federal court that had ruled in favor of state enforcement officials.
Kalshi had argued that its sports contracts should be classified as financial derivatives known as swaps. Under the company’s interpretation, swap contracts fall under the exclusive regulatory jurisdiction of the Commodity Futures Trading Commission (CFTC), which would prevent state gaming authorities from interfering.
Federal Preemption Claim Rejected
The appellate court rejected Kalshi’s claim that federal law overrides state authority in this context. Circuit Judge Julia Smith Gibbons wrote the opinion for the panel, detailing the boundaries of federal financial regulations and holding that federal rules do not strip states of their jurisdiction over gambling.
This ruling deepens a growing split among federal appellate courts regarding how prediction market platforms should be regulated. Because federal circuit courts now hold conflicting views on whether CFTC oversight preempts state gambling enforcement, legal experts expect the issue could eventually be appealed to the U.S. Supreme Court.
