Kalshi Loses as Court Rules Ohio, Tennessee Can Regulate Prediction Markets

An appeals court ruled against Kalshi last week, saying Ohio and Tennessee can regulate prediction markets under their gambling laws.

It’s the latest loss for Kalshi, which lost territory again in its ongoing turf war against the states. However, with appeals courts swinging one way and the other, the war is far from over.

The Sixth U.S. Court of Appeals in Cincinnati ruled that Ohio and Tennessee can oversee Kalshi under their existing sports betting legislation.

While it seems cut-and-dried for Kalshi, there is a glimmer of hope. Not all appeals courts feel the same way, and votes have not always been unanimous.

‘Swaps’ vs Sports Bets

Ruling for the Sixth Circuit Court of Appeals, Judge Julia Smith Gibbons said that both Ohio and Tennessee’s sports betting laws superseded CFTC rules.

Under the Commodity Exchange Act (CEA), prediction markets can operate across the country without oversight from state gambling commissions.

Event contracts are treated as “swaps”, rather like derivatives. Traders can buy and sell positions with one another, rather than betting against a central house.

This puts prediction market exchanges in direct conflict with states that argue they are still no different from sports bets. Gibbons argued that “swaps” should only refer to financial markets, not sports.

The ruling follows that of the Ninth Circuit, which ruled in August that the Nevada Gaming Control Board should regulate predictions.

Kalshi: State-by-State Regulation ‘Doesn’t Work’

Kalshi licked its wounds, arguing that the court ruling wouldn’t last a review. The “state-by-state patchwork doesn’t work,” said Kalshi’s Dani Leaver.

She added that Congress had created a single federal regulator [the CFTC] with “nationwide rules”, as “markets can’t operate when the rules change at every state line.

However, that’s precisely how online sportsbooks have operated since sports betting was effectively legalized in 2018.

States have gone their own way one by one, introducing their own set of rules which sportsbooks must adhere to. The same sportsbook may have slightly different offers or markets in Connecticut or a state like Arizona.

State Wars vs. Prediction Markets Continue

The ongoing legal tussle between Kalshi and states has been rumbling for months.

In August, a federal judge ruled that Connecticut could apply its sports betting laws to prediction market exchanges.

Despite a Kalshi fightback, a federal judge ruled that sports-related event contracts were no different from sports wagers.

Connecticut doubled down on the win by suing the prediction market exchange.

Michigan Rules, New Jersey Appeals

There have been mixed results for states looking to protect their sports betting industries.

Michigan outright banned Kalshi from offering sports event contracts earlier this month. The ban is temporary and is the latest flashpoint in a war that has been brewing since March.

However, New Jersey lost its case against Kalshi in the courts, with the Ninth Circuit Court of Appeals ruling in favor of the prediction exchange.

In reaction, the Garden State is taking its fight to the U.S. Supreme Court. NJ Attorney General Jennifer Davenport filed a petition for writ of certiorari to ask the court to rule on the legality of sports prediction markets.

‘A Great Win’ for Tennessee

Tennessee is another state with a fledgling sports betting industry. Its attorney general Jonathan Skrmetti called the Appeals Court triumph “a great win” for Tennessee, adding that sports betting was “heavily regulated” as it can “do a lot of harm”.

Kalshi will surely appeal the decision, but the battles aren’t over. Some commentators have said the U.S. Supreme Court is likely to decide on who regulates prediction markets, possibly by next summer. Until then, expect more court battles to play out across the United States.