A Sixth Circuit Court of Appeals panel ruled Friday that prediction market provider Kalshi’s sports-related event contracts are not federally regulated swaps, placing them under state gaming regulations rather than the Commodity Futures Trading Commission’s jurisdiction.
The ruling represents a significant split among federal appeals courts on how to classify prediction market products. The Third Circuit previously ruled the CFTC had jurisdiction over prediction markets, while the Eighth Circuit determined sports-related contracts were not swaps. The Sixth Circuit’s decision aligns with the Eighth Circuit’s position.
The panel wrote in its decision: “While we agree with Kalshi that its sports-event contracts are conditioned on the occurrence of ‘event[s],’ we conclude that Kalshi’s contracts do not depend on events that are ‘associated with a potential financial, economic, or commercial consequence’ within the meaning of the statute.”
Kalshi CEO and co-founder Tarek Mansour brought two separate cases against regulators in Ohio and Tennessee seeking injunctions to block the states from suing the platform. An Ohio federal court denied Kalshi’s motion, while a Tennessee federal court granted it. The states have argued that prediction markets compete directly with state gambling platforms and offer identical products to gambling sites and apps.
The jurisdictional dispute hinges partly on age requirements. Prediction markets typically offer products to people as young as 18, while most state gambling operators require users to be 21. States have also contended that federally regulated platforms do not pay state taxes while competing with state-regulated platforms.
The Sixth Circuit panel addressed the statutory definition of swaps in its reasoning, stating: “The proper terminology, then, seems to turn on how the event itself is defined. And because nothing in the statutory text provides a clear indication that the event must be defined to exclude outcomes, we decline to read such a limitation into the statutory definition ourselves.”
The Third Circuit case on prediction market jurisdiction has already been appealed to the U.S. Supreme Court, which could ultimately resolve the circuit split and establish nationwide precedent on how these products are regulated.
