Two Regulators, One Bet: Sixth Circuit Holds State Regulators Can Police Prediction Markets

The Sixth Circuit ruled on September 25 that Kalshi’s sports-related event contracts are not “swaps” under the Commodity Exchange Act (CEA), and further held that even if sports-event contracts are swaps, the CEA does not preempt state regulation of the sports-event contracts.

This decision deepens the existing circuit split: earlier this year, the Third Circuit held that the CFTC had exclusive jurisdiction over swaps, preempting state authority to regulate prediction markets; and the Ninth Circuit affirmed that the CEA does not preempt state gaming regulation of sports-event contracts in prediction markets. An appeal before the Fourth Circuit remains pending.

The Sixth Circuit’s ruling resolves litigation brought in 2025 against Kalshi by the Ohio Casino Control Commission and the Tennessee Sports Wagering Council intending to enforce state gaming laws against Kalshi for offering sports-related event contracts. 

The ruling adds to the evolving body of litigation addressing the legal status of prediction markets and event contracts. As discussed in our prior Freshfields coverage, many of the most significant questions facing the industry concern not only the nature of the contracts themselves, but also the allocation of regulatory authority among federal and state actors. The Sixth Circuit's decision squarely addresses that latter question.

Notably, the Sixth Circuit held that two savings clauses in CEA § 2(a)(1)(A) expressly preserve federal and state court jurisdiction. The court, therefore, concluded that states may regulate Kalshi’s sports-related event contracts. 

Although arising in a different regulatory context, the court's analysis is broadly consistent with other decisions that have been reluctant to infer exclusive federal regulatory authority absent clear congressional direction. For example, in Federal Energy Regulatory Commission v. Barclays Bank PLC, the Eastern District of California rejected the argument that the CFTC possessed exclusive jurisdiction over certain swap-related conduct and permitted parallel federal regulatory authority to proceed. While the case did not involve state gaming regulation or prediction markets, it reflects a similar reluctance to infer exclusivity absent clear statutory language.

The Sixth Circuit’s decision aligns with the Ninth Circuit’s holding in KalshiEX, LLC v. Assad and rejects the Third Circuit’s holding in KalshiEX, LLC v. Flaherty. The Sixth and Ninth Circuits concluded that Kalshi’s event contracts are not swaps because they do not function as traditional risk-hedging instruments. Both courts also expressed concern that an overly expansive definition of “swap” could sweep ordinary sports wagering into federal commodities regulation.. The Sixth Circuit agrees with the Ninth Circuit that “state law and the CEA can coexist” when applied to sports-related events contracts. In contrast, the Third Circuit held that sports outcomes “certainly can be associated” with financial consequences, and ended its analysis there. It ruled that the CFTC’s exclusive jurisdiction over swaps preempts state law. The Sixth Circuit rejected both conclusions. 

The significance of the decision extends beyond sports-event contracts. As prediction markets expand into new categories of event contracts, courts and regulators are increasingly confronting questions regarding the allocation of authority among federal and state regulators.

The Sixth Circuit concluded that, at least in this context, state and federal regulatory regimes can operate concurrently. As a result, state regulators may continue to pursue gaming and related regulatory theories with respect to event contracts notwithstanding the existence of a federal commodities regulatory framework. The Sixth Circuit’s decision suggests that, absent clearer congressional direction, courts may be reluctant to infer broad preemption of state regulatory authority.

This decision signals that prediction market platforms could be heading towards regulatory scrutiny by both state and federal regulators, complicating the compliance regimes required for prediction markets platforms. With the Sixth and Ninth Circuits now aligned against the Third Circuit, the outcome of a similar appeal pending in the Second and Fourth Circuits will likely lead the Supreme Court to weigh in on the jurisdictional issues soon.

For market participants, the practical implication is that compliance with CFTC requirements alone may not eliminate regulatory risk. Depending on the jurisdiction, operators may also need to consider state gaming, licensing, consumer-protection, and related regulatory requirements.

As discussed in our prior Freshfields coverage of prediction markets and event contracts, questions regarding the allocation of regulatory authority have become as significant as debates over the legal characterization of the contracts themselves. The Sixth Circuit's decision suggests that those questions will remain central to the industry's development unless and until the Supreme Court resolves the growing circuit split.

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