Kalshi's prediction markets just lost federal court protection from state gambling laws in Ohio and Tennessee.
A three-judge panel of the 6th U.S. Circuit Court of Appeals ruled on September 26, 2026, that Ohio and Tennessee can apply their gambling laws to Kalshi's event contracts. Kalshi argued its sports contracts are "swaps" - financial products under the exclusive oversight of the Commodity Futures Trading Commission. Circuit Judge Julia Smith Gibbons rejected that framing, writing that swaps are tools for hedging financial risk, not gaming-related contracts, and that regulating gambling is a core state police power. The ruling reverses a preliminary injunction that had blocked Tennessee from enforcing its gambling laws against Kalshi, and it upholds a similar decision in Ohio.
The decision deepens a split among federal appeals courts over who regulates prediction markets - individual states or the CFTC - which raises the odds the Supreme Court eventually takes up the question. Similar fights are already playing out in Connecticut, New York, Arizona, and Minnesota, so this won't be the last word on whether betting on sports outcomes counts as a hedge or a wager.
Kalshi says it expects the ruling to be overturned, but a unanimous panel calling corner-kick prop bets a stretch for federal financial law is a rough sign for that appeal. It's federal appellate courts, not state courts, that are shaping this fight, and the growing circuit split means the Supreme Court may eventually have to settle it.