Securities Regulation Daily Wrap Up, FEDERAL PREEMPTION—6th Cir.: Sixth Circuit rules Ohio, Tennessee may apply gambling laws to Kalshi sports-related trading, (Sep 28, 2026)

By Lene Powell, J.D.

The ruling deepens a federal appellate split over whether states can regulate prediction markets trading.

The Sixth Circuit resolved appeals arising in Ohio and Tennessee by ruling that sports-related event contracts on the Kalshi predictions market are not “swaps” and do not fall within the CFTC’s exclusive jurisdiction. A three-judge panel decided that even if the contracts are swaps, the Commodity Exchange Act (CEA) neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws. The court affirmed the Southern District of Ohio’s denial of a preliminary injunction and vacated and remanded the Middle District of Tennessee’s entry of a preliminary injunction (KalshiEx v. Schuler, No. 26-3196/5235 (6th Cir. Sept. 25, 2026)).

The decision further widens a circuit split in which the Ninth Circuit similarly held that Nevada can enforce its gaming laws against Kalshi’s contracts, while the Third Circuit held that the CEA preempts New Jersey’s laws in relation to the contracts.

Kalshi’s contracts are not swaps. After disposing of a threshold issue that Kalshi had a cause of action to challenge state enforcement actions by Ohio and Tennessee, the court held that Kalshi did not show that its sports-event contracts satisfy the statutory definition of a “swap” so as to fall within the scope of the CFTC’s “exclusive jurisdiction.”

Examining the CEA’s definition of “swap,” the court agreed with Kalshi that its sports-event contracts are conditioned on the occurrence of “events.” The court disagreed with the states’ suggested distinction between “events” and “outcomes.” For example, whether Lionel Messi scores a hat trick or an announcer uses certain words during a broadcast is not easily understood as an “outcome.”

However, the court agreed with the states 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. The court decided that a narrow reading of “associated with” best fit with the statute. Under this reading, an event must be “intrinsically associated with a financial consequence such that we can reasonably understand why hedging financial risk or ascertaining pricing information for the occurrence of that event would be desired and beneficial (e.g., a change in interest rates).”

“An event will be inherently associated with a financial consequence if it ‘itself has’ such a consequence ‘without looking at externalities like potential downstream’ consequences,” the court wrote. “Conversely, economic consequences that follow remotely from an event are not truly ‘associated with’ that event.

Here, Kalshi’s sports-event contracts have only “downstream economic consequences, assuming they have the potential to cause economic consequences at all.” Thus, they are not “associated” with potential financial, economic, or commercial consequences, even if they may eventually lead to some down the line.

For example, contracts based on financial values or instruments like interest rates or stock prices would have financial consequences, the court said. In contrast, any financial consequences for a contract based on who is named Super Bowl MVP would depend on external, downstream events, such as a sponsor deciding to award the winner a prize.

The court said that the CEA’s critical functions of hedging and price basing provided relevant context for how to interpret “associated with:” the categories of events must be “sufficiently associated with financial consequences such that it would be commonly understood that hedging risk and deriving pricing information about those events could promote market stability.” “This reading also fit better with the CEA’s core purpose of protecting the national public interest by providing a means for managing and assuming price risks, discovering prices, or disseminating pricing information.

The court warned that Kalshi’s interpretation could expose “millions of otherwise law-abiding Americans” to criminal liability. Kalshi’s proposed interpretation would “attach criminal penalties to a breathtaking amount of commonplace [gambling] activity” because the CEA makes it generally “unlawful for any person to enter into a swap unless it is on a federally regulated market.

“Thus, as the States note, if sports bets are swaps, they must take place on federal markets. That would include every sports wager placed in a casino, on an online sports book, or between two friends at a bar,” the court wrote. The court noted that nothing in the statutory definition of a swap draws a distinction based on whether the instrument is “tradable.”

CEA does not preempt state law here. Next, the panel rejected Kalshi’s argument that even if its sports-event contracts are not swaps, they are nevertheless subject to the CFTC’s exclusive jurisdiction under express, field, and/or conflict preemption.

The court analyzed the traditional presumption against preemption and noted there is a long history of states regulating intrastate gambling, and a history of federal gambling regulations tying federal illegality to state law. Therefore, the CEA regulates “a field traditionally occupied by the States,” and the presumption against preemption “applies with particular force.”

The court concluded that Congress did not mean to preempt state law in this area. The “exclusive jurisdiction” language used in CEA § 2(a)(1)(A) typically applies to limit courts’ jurisdiction, rather than agencies’ power to regulate or states’ power to make law. A typical express preemption provision uses words such as “preempt” or “supersede” when referring to state law. And, the CEA itself contains more typical express preemption provisions elsewhere.

Analyzing a savings clause, the court concluded that the exclusive jurisdiction provision displaces direct enforcement and regulatory authority pertaining to the licensing and operation of DCMs. However, ancillary regulations that only incidentally burden DCMs do not come within the provision’s substantive scope.

“The laws impose no restrictions on the designation or operation of contract markets as such,” the court wrote. “Instead, they regulate sports betting. Their effects on DCMs are limited—and are felt only because DCMs like Kalshi have decided to offer event contracts that ‘are virtually indistinguishable from’ sports bets. Therefore, they are not preempted.”

The court further found that field preemption did not apply. Even assuming that Kalshi was right that on-DCM trading was the relevant field, the court disagreed that Congress has occupied it entirely. First, the CEA’s exclusive jurisdiction provision indicated that Congress did not intend to occupy the entire field. Second, another provision of the CEA shows that Congress reserved certain antifraud powers to states—including with regard to on-DCM transactions. The court concluded that the “Special Rule” governing approval or delisting of event contracts suggests that the CFTC may consider not only federal but also state law vis-à-vis the legality of a DCM’s conduct.

Finally, the court concluded that conflict preemption did not apply either. States’ gaming laws did not “subvert Congress’s objective to bring futures markets “under a uniform set of regulations.” Further, the court was not persuaded by Kalshi’s argument of impossibility because federal law “forbids what the state law requires.” CFTC regulations mandate that a DCM offer “impartial access” to whatever markets the entity offers, not to require a designated contract market like Kalshi to offer any “particular market” for the event contracts it lists. Further, other companies have complied with both federal and state laws by implementing geofencing.

Accordingly, the court held that Kalshi failed to establish a likelihood of success under all preemption principles.

The case is Nos. 26-3196 / No. 26-5235.

Judge: Gibbons, J.

Attorneys: William E. Havemann (Milbank LLP) for KalshiEx LLC. Mathura J. Sridharan, Office of the Ohio Attorney General, for Matthew T. Schuler.

Companies: KalshiEx LLC

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