Kalshi Takes Another Blow as Court Says That States Can Regulate Prediction Markets

Kalshi has been dealt another major blow after the 6th US Circuit Court of Appeals in Cincinnati ruled that the states of Ohio and Tennessee can indeed apply their local gambling laws to event contracts. Kalshi, however, is optimistic that the decision will not last. Prediction Markets Continue to Face Pushback Prediction markets have been a major point of contention in the US, where state gambling regulators have argued that products such as event contracts should be regulated like gambling. At the same time, prediction markets insist that their offerings are actually financial instruments due to a variety of differences in how event contracts function. This has led to multiple clashes between regulatory bodies and companies that offer such products. The latest such clash just saw Kalshi, one of the top players in the prediction markets space, receive an unfavorable ruling. The 6th US Circuit Court of Appeals in Cincinnati just ruled that Ohio and Tennessee can regulate event contracts under local gambling laws, despite the claims that prediction markets are not gambling. The ruling came as a result of a lawsuit involving Kalshi. Kalshi Couldn’t Prove Its Sports Products Were Swaps According to Circuit Judge Julia Smith Gibbons, Kalshi couldn’t prove that its sports products were swaps that should be exclusively under the Commodity Futures Trading Commission’s purview. Gibbons explained that swaps are a term for financial measures, indices and instruments that help people manage risk and not for gaming-related contracts. In addition to that, she said that the Commodity Exchange Act does not preempt state gambling laws. Gibson also argued that the Commodity Exchange Act was created to shield the US’s interest by allowing better risk management and facilitating the obtaining of pricing information. She emphasized that sports-related event contracts do not advance those goals. Kalshi Does Not Expect the Ruling to Survive Kalshi responded to the development, saying that it does not expect the ruling to last. According to a spokesperson, further legal review should overturn the latest decision. The spokesperson added that a state-by-state approach to regulation does not work when it comes to financial markets, which is why Kalshi believes that all similar products must remain under the CFTC’s purview. At the same time, Tennessee’s AG, Jonathan Skrmetti, called the court ruling a great win for the state. Ohio’s AG has yet to release a statement on the matter. In any case, the battle for the future of prediction markets continues. Previously, the 9th Circuit Court in San Francisco ruled that Nevada can apply its gambling laws to prediction markets, effectively contradicting an earlier ruling in Philadelphia, which stated that New Jersey cannot regulate prediction markets. The latter decision has since been disputed, with New Jersey demanding that it be overturned. Elsewhere, US District Judge Stephen Locher denied a preliminary injunction request by Kalshi to prevent Iowa from applying the state’s gambling laws to its business.