The US Court of Appeals for the Sixth Circuit ruled on Sept. 25 that Ohio and Tennessee can enforce their sports-wagering laws against Kalshi. It is the exchange’s second federal appellate loss in less than a month.
In a unanimous opinion by Judge Julia Smith Gibbons, the panel upheld a lower court’s refusal to block Ohio’s enforcement and vacated the preliminary injunction Kalshi had won in Tennessee. The court held that Kalshi’s sports-event contracts are not “swaps” under the Commodity Exchange Act (CEA). It added that even if they were, federal law would not preempt either state’s gambling laws.
The ruling leaves the federal appeals courts split three ways over whether states can police sports contracts on designated contract markets (DCMs). Rob Schwartz, a Morgan Lewis partner and former general counsel of the Commodity Futures Trading Commission (CFTC), mapped the split in a LinkedIn post.
“So now we have (a) it’s a swap and there is preemption (CA3); (b) there would be preemption but it’s not a swap (CA9); and (c) it’s not a swap and there wouldn’t be preemption even if it was (CA6). The Supreme Court can’t get here soon enough,” Schwartz wrote.
Kalshi now has two appellate losses against one win. The ruling binds federal courts in Ohio, Tennessee, Michigan and Kentucky.
Downstream effects don’t make a swap
The central holding turns on one clause of the CEA’s swap definition, which covers contracts tied to an event “associated with a potential financial, economic, or commercial consequence.” The court read that to require an event with a financial consequence of its own, such as an interest-rate change. Effects that depend on later decisions by sponsors, broadcasters or teams did not count, so game results, corner-kick counts and parlays failed the test.
At oral argument, Kalshi’s counsel conceded that a “layperson” might struggle to see the economic stakes in some contracts. The court turned that concession against Kalshi.
“But if we—or a ‘layperson’—cannot discern that a sports-event contract has potential economic consequences, then it would be a stretch to say such a contract is ‘associated’ with potential economic consequences,” Gibbons wrote.
Kalshi spokesperson Dani Lever disputed the reasoning. “The law does not require a swap to involve ‘intrinsic’ financial consequences – and even if it did, sports clearly do,” she said, per Courthouse News Service.
Preemption fails even if they are swaps
Having found the contracts are not swaps, the court went further, ruling that even if they were swaps, the CEA would not preempt Ohio’s or Tennessee’s gambling laws. It read the CEA’s “exclusive jurisdiction” clause narrowly: states cannot directly license or regulate how DCMs operate, but general gambling laws that only touch exchanges incidentally still apply.
“The state gambling laws that the States seek to enforce do not directly regulate the licensure and operation of transactions on DCMs—but only incidentally burden those functions—and therefore are not blocked by by § 2(a)(1)(A),” the opinion states.
The panel also rejected field and conflict preemption, finding that Kalshi can comply with both federal and state law by geofencing. Unlike the Ninth Circuit, it expressly declined to rely on the major questions doctrine.
Gary DeWaal, a derivatives lawyer and FIA Hall of Fame inductee formerly with Katten Muchin Rosenman, pushed back in a comment on Schwartz’s post.
“Too many courts, including now the Sixth Circuit Court of Appeals, are rewarding the states for dredging up their old use of their anti-gambling and anti-bucket shop provisions to prohibit or penalize speculative trading on DCMs,” DeWaal wrote.
DeWaal argued that Congress amended the CEA in 1974 and 2010 to preempt state regulation of futures and swaps traded on DCMs, and that the 2010 swap definition was written broadly enough to capture event contracts, including gaming. He cited Congress’s bans on box office futures and onion futures as proof it knows how to exclude an asset class when it wants to.
“Looked at in the context of history this is all very clear, at least to this old timer,” he wrote.
How we got here
The Ohio Casino Control Commission sent Kalshi a cease-and-desist letter on March 31, 2025. Kalshi sued in the Southern District of Ohio on Oct. 7, and US District Judge Sarah Morrison denied it a preliminary injunction on March 9, 2026. On April 24, a Sixth Circuit motions panel refused to halt Ohio’s enforcement during the appeal.
In June, 39 states and DC backed Ohio in the Kalshi fight, and the panel heard argument on July 30.
In Tennessee, the Sports Wagering Council ordered Kalshi to stop by Jan. 31, 2026. US District Judge Aleta Trauger issued a restraining order on Jan. 12, and Kalshi got a preliminary win in the Tennessee legal battle with a preliminary injunction on Feb. 23. That injunction is the one the Sixth Circuit vacated.
Elsewhere, the Third Circuit sided with Kalshi in New Jersey in April. Kalshi lost its Nevada appeal at the Ninth Circuit on Aug. 28, and the Maryland case is still pending at the Fourth Circuit.
Is the Supreme Court inevitable?
The Supreme Court already has a vehicle. New Jersey asked the Supreme Court to take up the Kalshi sports fight on Sept. 2, and Flaherty v. KalshiEX (No. 26-299) was docketed on Sept. 8. On Sept. 22, the National Council of Legislators from Gaming States (NCLGS) filed an amicus brief, and Kalshi’s deadline to respond was extended to Nov. 9.
Kalshi could also seek rehearing before the full Sixth Circuit, but its public position points toward the justices.
“The ruling shows exactly why a state-by-state patchwork doesn’t work,” Lever said. “Courts can’t agree on the basics: Some say federal law covers these contracts, and others say it doesn’t.”
The disagreement is no longer only over whether sports contracts are swaps. It now extends to what the CFTC’s exclusive jurisdiction covers, and that question reaches every event contract listed on a federally regulated exchange.
Three circuits have now produced three different readings of the same statute. Schwartz’s line that the Supreme Court “can’t get here soon enough” is no longer only a practitioner’s lament. Both the states and Kalshi are now asking for a higher court to step in, and the answer will decide whether sports contracts on federally regulated exchanges trade nationwide or state by state.