Sixth Circuit Kalshi Ruling: Sports Event Contracts Are Not Swaps, and States Can Enforce

The Sixth Circuit Kalshi ruling strips the federal shield from sports event contracts

On 25 September 2026 a unanimous panel of the United States Court of Appeals for the Sixth Circuit held that KalshiEX LLC's sports event contracts are not "swaps" within the meaning of the Commodity Exchange Act, that the Commodity Futures Trading Commission therefore has no exclusive jurisdiction over them, and that Ohio and Tennessee are free to enforce their gambling laws against the platform. The Sixth Circuit Kalshi ruling, issued in the consolidated appeals KalshiEX LLC v. Schuler and KalshiEX LLC v. Orgel, Nos. 26-3196/5235, affirms the Southern District of Ohio's refusal to enjoin the Ohio Casino Control Commission and vacates the Middle District of Tennessee order that had been holding the Tennessee Sports Wagering Council at bay.

For practitioners the consequence runs well past gaming regulation. Federal preemption has been the load-bearing wall of the prediction-market industry's defense, and it has been doing double duty: it answered state regulators, and it answered the private plaintiffs who have filed more than a dozen putative class actions against Kalshi, Polymarket, Robinhood and DraftKings over sports event contracts. Knock the wall out in one circuit and the state-law consumer claims — including loss-recovery statutes that hand a bettor a statutory right to claw back money lost to an unlicensed operator — become live. What happens next to those claims is not a question of gaming policy at all. It is a question about an Arbitration Clause, and about a Class Action Waiver backed by an express JAMS mass arbitration protocol sitting in Kalshi's member terms.

What did the Sixth Circuit decide in the Kalshi case?

The Sixth Circuit decided that Kalshi cannot use federal commodities law to keep Ohio and Tennessee from applying their gambling statutes to its sports event contracts, because those contracts are not swaps and because, even if they were, the Commodity Exchange Act does not preempt the two states' laws. Senior Circuit Judge Julia Smith Gibbons wrote for the panel that "Kalshi has not shown 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.'"

The posture matters for how quickly the ruling bites. Both appeals arose from preliminary-injunction practice rather than final judgments. Ohio's Casino Control Commission had sent Kalshi a cease-and-desist letter alleging unlicensed sports gaming, including to people under 21; the Tennessee Sports Wagering Council sent its own cease-and-desist in early 2026. Kalshi sued in each state and sought to freeze enforcement. It lost in the Southern District of Ohio and won in the Middle District of Tennessee. The Sixth Circuit affirmed the loss and vacated the win, so both regulators now have an unobstructed path, subject to whatever further proceedings Kalshi pursues.

Two features of the opinion make it unusually durable. First, the panel was unanimous. Second, the court gave two independent grounds — the swap holding and the preemption holding — which means a reviewing court would have to dislodge both to restore Kalshi's shield in the Sixth Circuit.

Are sports event contracts swaps under the Commodity Exchange Act?

Under the Sixth Circuit's reading, no: a sports event contract is not a swap because the outcome it references is not intrinsically tied to a financial, economic or commercial consequence, and only contracts referencing such an occurrence fall inside the statutory definition. The statutory hook is the branch of the definition covering contracts that transfer risk based on the occurrence of an event "associated with a potential financial, economic, or commercial consequence."

Kalshi's position was that sports outcomes plainly carry economic consequences — for leagues, broadcasters, advertisers, sponsors, teams and the businesses around a stadium — and that the statute asks nothing more. The panel held that the connection has to be intrinsic to the referenced event rather than a ripple that follows it. In Judge Gibbons's formulation, Kalshi's "sports event contracts have only downstream economic consequences, assuming they have the potential to cause economic consequences at all."

The opinion tests that with examples. A team "using prediction markets to hedge against the risk of paying performance bonuses," or "a bar offering free drinks if the Knicks won the first game of the NBA Finals," are not the sort of financial exposures the swap definition was written to address. The panel framed the inquiry around whether there is a common understanding that hedging the risk of a particular event would be beneficial and would promote market stability. A game's final score does not clear that bar merely because someone, somewhere, has money riding on it.

That reasoning is the part most likely to travel. It supplies a limiting principle for the whole event-contract category, not just sports: the further a referenced occurrence sits from an inherent commercial risk, the weaker the claim to swap status and to the federal jurisdictional umbrella that comes with it.

The preemption holding, and why the alternative ground matters

Having decided the contracts are not swaps, the panel could have stopped. It did not. It held in the alternative that "the CEA neither expressly nor impliedly preempts Ohio's or Tennessee's gambling laws."

The reasoning attacks the premise the Third Circuit accepted. Kalshi's preemption theory rests on the Commodity Exchange Act's grant of "exclusive jurisdiction" to the CFTC, at 7 U.S.C. § 2(a)(1)(A), read as a field-clearing command. The Sixth Circuit read the exclusivity language as directed at the allocation of adjudicative authority — an exclusion of other courts' jurisdiction — rather than as a prohibition on state legislatures' power to make law. That distinction between jurisdictional exclusivity and substantive field preemption is the doctrinal core of the split.

For litigators, the alternative holding changes the shape of the argument in every other circuit. A defendant can no longer treat the swap question as dispositive and the preemption question as a formality that follows from it. Each has to be won separately, and the Sixth Circuit has now written an opinion that a state attorney general can cite for either.

What is the circuit split over prediction markets?

Three federal courts of appeals have now reached the question, and they are aligned two to one against Kalshi, with the Ninth Circuit arriving by a different statutory route.

Court	Decision	Date	Holding	Effect
Third Circuit	KalshiEX LLC v. Flaherty, No. 25-1922 (divided panel)	6 April 2026	Sports event contracts are swaps; the CEA field- and conflict-preempts state gambling enforcement against a designated contract market	Preliminary injunction for Kalshi against New Jersey affirmed
Ninth Circuit	Blue Lake Rancheria v. Kalshi	16 September 2026	Sports event contracts accessed from tribal lands are class III gaming under the Indian Gaming Regulatory Act; tribes likely to succeed	Denial of preliminary injunction reversed in part in favor of two California tribes
Sixth Circuit	KalshiEX LLC v. Schuler; KalshiEX LLC v. Orgel, Nos. 26-3196/5235 (unanimous)	25 September 2026	Contracts are not swaps; alternatively, no express or implied preemption of Ohio or Tennessee gambling law	Ohio denial affirmed; Tennessee injunction vacated

The Third Circuit's decision was itself divided. The dissent argued that trading on a designated contract market is a subfield of futures trading too narrow to support field preemption, that the Commodity Exchange Act's savings clauses are fundamentally incompatible with complete field preemption, and that CFTC Rule 40.11(a)(1) — which bars designated contract markets from listing gaming contracts — undercuts the conflict-preemption theory. Those are now the arguments two other circuits have effectively adopted.

The practical result is that the same product carries different legal status depending on geography. In the Third Circuit, state gambling enforcement against sports event contracts is blocked. In the Sixth, it is permitted. In the Ninth, the contracts are unlawful class III gaming when accessed from tribal land. A single national platform is simultaneously protected and exposed.

Will the Supreme Court hear the Kalshi case?

There is no grant yet, but the odds have moved: New Jersey has already petitioned for certiorari from the Third Circuit decision, and the Sixth Circuit ruling converts a two-way disagreement into an entrenched three-court conflict on a recurring question of federal preemption. Commentators tracking the litigation treat a split of this kind as the single strongest predictor of review, against a baseline in which the Court denies the overwhelming majority of petitions.

Three features make the vehicle attractive. The question is purely legal and presented on a preliminary-injunction record in each case, so there is little factual underbrush. The federal government's own position is unusually visible — the CFTC has asserted exclusive jurisdiction in briefing before state and federal courts, including as amicus in the Massachusetts Supreme Judicial Court appeal, while a coalition of 38 state attorneys general has argued the opposite in the same forum. And the disagreement is not academic: it determines whether a multibillion-dollar market operates lawfully in roughly half the country.

What the Court would resolve is narrower than the industry debate. The cleanest question presented is whether the Commodity Exchange Act's grant of exclusive jurisdiction to the CFTC displaces state gambling law as applied to event contracts listed on a designated contract market. The antecedent question — whether sports event contracts are swaps at all — may or may not travel with it, and a decision on preemption alone would leave the Sixth Circuit's swap holding standing as an independent ground.

Does the Sixth Circuit ruling affect Kalshi users in other states?

Directly, it binds only Ohio and Tennessee; indirectly, it supplies persuasive authority to every state regulator and private plaintiff outside the Third Circuit, and it will be cited immediately in the state-court and district-court proceedings already underway elsewhere. The map is crowded.

Forum	Posture	Status
Massachusetts	State enforcement action filed September 2025, the first by any state; Suffolk County Superior Court preliminary injunction January 2026	On direct appellate review before the Supreme Judicial Court; CFTC and 38 state attorneys general filed opposing amicus briefs
New York	State enforcement; Kalshi sought to enjoin	Preliminary injunction denied; the CFTC then invoked emergency authority in August 2026 to order Kalshi to keep operating
New Jersey	Kalshi enjoined state enforcement and won in the Third Circuit	New Jersey's certiorari petition pending at the Supreme Court
Minnesota	Statute criminalizing the operation and advertising of prediction markets, effective 1 August	Challenged by the CFTC and by Kalshi
Tribal lands (Ninth Circuit)	Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians	Tribes likely to succeed on IGRA claims; injunctive relief proceedings continue
Baltimore	Municipal consumer-protection suit against Kalshi and Polymarket	Pending
Nine states	CFTC-initiated actions defending federal jurisdiction, including Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin	Pending

The scale behind that map explains the intensity. Kalshi recorded more than $31bn in notional volume in June 2026, up more than 70% from $17.9bn in May, and sports trading across June and July topped $58bn during the FIFA World Cup. Sports has accounted for roughly 80% of Kalshi's volume since July 2024. The company was valued at $22bn in May 2026, and its distribution runs through Robinhood's brokerage base. A Roosevelt Institute study found that Kalshi users lost more than half a billion dollars between the platform's launch in July 2021 and May 2026.

Can Kalshi users sue to recover their losses?

They are already trying, and the Sixth Circuit ruling removes the preemption defense that had been the fastest way to dispose of those claims in courts that accepted it. More than a dozen putative class actions are pending against Polymarket and Kalshi, along with Robinhood and DraftKings, alleging that sports event contracts are unlicensed sports betting dressed as derivatives trading and that marketing them as investing violates state consumer protection law. The Kalshi cases have been consolidated in the Southern District of New York as In re Kalshi Sports Prediction Market Litigation, No. 1:25-cv-08585, before Judge Jennifer L. Rochon; the Robinhood cases are consolidated in the Northern District of California.

The damages engine is the part defense counsel should read twice. Several complaints plead claims under state loss-recovery statutes descended from the Statute of Anne — provisions that allow a resident, and in some states any person, to recover money lost to an unlawful gambling operator, often with a multiplier. Plaintiffs in the Kalshi consolidated action seek refunds for everyone who lost money on sports markets, threefold damages where state law allows, and injunctive relief. Those statutes do not require proof of deception or reliance. They require that the operator was unlawful. That is precisely the question the Sixth Circuit just answered in two states' favor.

Running alongside is a distinct but overlapping tort wave. Roughly fifteen suits have been filed against FanDuel and DraftKings alleging that sportsbook apps were engineered to addict users through push notifications, bonus offers and personal VIP managers, and a parallel class action accuses Kalshi of exploiting users' gambling addictions. A DraftKings Predictions class action was filed in Massachusetts federal court on 28 July 2026, and a South Carolina action followed on 29 July 2026. Those claims share plaintiffs, marketing records and causation experts with the consumer cases, which is how a consumer-protection docket becomes a mass tort.

Does Kalshi's user agreement force claims into arbitration?

Its terms are written to do exactly that: the member agreement requires final and binding individual arbitration, imposes a Class Action Waiver, delegates jurisdictional questions to the arbitrator, gives a 30-day opt-out window running from a user's first entry, and selects New York law. A Motion to Compel Arbitration and an alternative motion to dismiss were briefed in the consolidated Southern District of New York action between January and March 2026.

What makes the clause worth study is not the class waiver, which is unremarkable after a decade of Federal Arbitration Act jurisprudence. It is the mass arbitration machinery bolted on behind it.

Term	What Kalshi's member agreement provides
Forum	Individual arbitration; class, collective, private attorney general, qui tam and representative proceedings all waived
Gateway Questions	Delegation Clause sending jurisdictional disputes to the arbitrator
Opt-out	Requests made more than 30 days after a user's first entry are ineffective
Mass Filing Threshold	75 or more similar demands filed with JAMS within a 60-day period by or with the assistance of coordinated counsel
Consolidation	JAMS consolidates those demands under the JAMS Mass Arbitration Rules
Batching	After dispositive briefing, a first batch of no more than 25 demands proceeds as a single arbitration
Governing law	New York

Read the two documents together and the strategic picture resolves. The Sixth Circuit has just made the underlying state-law claims substantially stronger in a large part of the country. Kalshi's terms respond by denying claimants the aggregation device — a Class Action — that makes small-value claims economic, and channeling them instead into a private forum with Staggered Processing. That is the same trade every consumer-facing defendant with a modern clause has made, and it produces the same predictable counter-move: if the class door is closed, claimants' firms build inventories and file in volume.

The numbers are unusually favorable to that counter-move here. Losses are documented on the platform itself, down to the contract. There is no individualized medical causation to prove. Loss-recovery statutes supply a mechanical measure of damages and, in some states, a multiplier. Claimant identification and Claimant Vetting — the friction that has sunk other mass filings — are close to trivial when the respondent holds the trading records. A campaign that clears 75 demands in 60 days triggers Kalshi's own consolidation provision, and the first batch of 25 then functions as a de facto bellwether set for a claim pool that could run to six figures.

Nothing in the Sixth Circuit opinion decides any of that. But the opinion changes the expected value of every one of those demands, and expected value is what determines whether a Mass Arbitration campaign gets funded.

What does the ruling mean for DraftKings, Robinhood and Polymarket?

The holding is about Kalshi's contracts, but its reasoning applies to any operator offering sports event contracts through a designated contract market, which is why Robinhood, Polymarket and DraftKings Predictions are exposed to the same analysis in the Sixth Circuit and to the same persuasive authority elsewhere. Distribution partners are exposed twice over: Robinhood carries prediction markets to a brokerage user base of roughly 27 million funded accounts, which makes it a defendant with its own consolidated docket rather than a bystander to Kalshi's.

The compliance question for each operator is now geographic and immediate. Ohio and Tennessee enforcement is unblocked. New Jersey remains protected pending the Supreme Court. Tribal lands in the Ninth Circuit are off limits for these contracts. Everywhere else, the defense depends on which circuit's reasoning a court adopts, and the score is two to one against.

What it means for claimants' counsel, defendants and the injury bar

For claimants' counsel. The preemption defense is no longer a reliable early exit in the Sixth Circuit, and the Ninth Circuit's IGRA holding gives tribal plaintiffs an independent theory. The binding constraint on the consumer cases is no longer the merits. It is the Arbitration Clause. Firms building inventory should assume the class vehicle will be contested and price the matter as a mass arbitration from the outset, including the 30-day opt-out window, the 75-demand Mass Filing Threshold and the 25-demand first batch. Where claimants opted out in time, those are the cases that keep a class action alive.

For defendants and clause drafters. The Kalshi terms are a well-drafted instrument of a familiar kind, and this is the scenario in which that kind of instrument is tested: a defendant facing a very large, easily identified, documentary-proof claim pool in which the merits have just improved. Drafters watching this docket should note that an express mass arbitration protocol in the clause is a double-edged provision. It gives the respondent structure, sequencing and cost control, and it also tells claimants' counsel exactly how many demands to file to trigger it. The Fee Non-Payment litigation of the last several years is the cautionary history.

For the personal injury and addiction bar. The consumer and addiction dockets are converging. Suits alleging that betting and prediction apps were engineered around compulsive use depend on the same design records, VIP-program documents and notification logs as the consumer-protection cases, and an operator held to be unlawful under state gambling law is a materially easier negligence and unfair-practices defendant. Firms already handling sports-betting addiction claims should be tracking the Kalshi split as a liability question, not a regulatory one.

For everyone. None of this is settled. The Supreme Court has a live petition, a fresh conflict and an executive agency on one side of it. A grant would suspend a great deal of the activity described above. A denial would leave a market operating under three incompatible legal regimes.

FAQ

What did the Sixth Circuit decide in the Kalshi case?

On 25 September 2026 a unanimous Sixth Circuit panel held that Kalshi's sports event contracts are not swaps under the Commodity Exchange Act, that the CFTC therefore lacks exclusive jurisdiction over them, and that the Act does not preempt Ohio's or Tennessee's gambling laws; the court affirmed Ohio's win below and vacated the injunction Kalshi had obtained against Tennessee.

Are sports event contracts swaps?

Not in the Sixth Circuit: the panel held that the referenced event must be intrinsically associated with a financial, economic or commercial consequence, and that a sporting result produces at most downstream economic effects, which is not enough.

What is the circuit split over prediction markets?

The Third Circuit held in April 2026 that sports event contracts are swaps and that federal law preempts state gambling enforcement; the Ninth Circuit held in September 2026 that they are class III gaming under the Indian Gaming Regulatory Act on tribal lands; the Sixth Circuit held in September 2026 that they are not swaps and that no preemption applies.

Will the Supreme Court take the Kalshi case?

New Jersey's certiorari petition from the Third Circuit decision is pending, and the Sixth Circuit ruling deepens the conflict that makes review more likely, but the Court has not granted anything and no argument date exists.

Can users recover money they lost on prediction markets?

Several pending class actions seek exactly that, pleading state loss-recovery statutes that allow money lost to an unlawful gambling operator to be recovered, sometimes trebled — but whether any individual user can pursue such a claim in court depends on the operator's arbitration terms and on whether the user opted out within the contractual window.

Does Kalshi's arbitration clause block a class action?

Its member agreement requires individual arbitration and waives class, collective, representative and qui tam proceedings, and a motion to compel arbitration has been briefed in the consolidated Southern District of New York case; the court has not ruled, so the question is open.

What happens if thousands of claimants file arbitration demands against Kalshi?

Kalshi's own terms address that scenario: where 75 or more similar demands are filed with JAMS within 60 days by coordinated counsel, JAMS consolidates them under its mass arbitration rules and, after dispositive briefing, a first batch of no more than 25 demands proceeds as a single arbitration.