A U.S. appeals court in Cincinnati ruled on Friday that Ohio and Tennessee may enforce their gambling laws against prediction market operator Kalshi. The 6th Circuit held that the company's event contracts are subject to state regulation and that the federal Commodity Exchange Act does not preempt those laws. The decision overturns a lower court injunction that had blocked Tennessee from applying its gambling statutes, while also leaving an Ohio injunction in place.

Kalshi had argued that its contracts should be treated as financial swaps under federal jurisdiction, but the court found that such contracts do not fall within the definition of swaps that the Commodity Futures Trading Commission is empowered to regulate. The judgment emphasized that gambling regulation is a core function of state police power and that Congress has historically left gambling oversight to the states.

The ruling comes amid a broader legal debate over whether prediction markets should be governed by federal agencies or by state gambling authorities. Two other federal appeals courts have issued conflicting opinions on the matter: the Ninth Circuit recently held that Kalshi's contracts are subject to Nevada's gambling laws, while the Third Circuit determined that they are not subject to New Jersey's gambling statutes. New Jersey has petitioned the U.S. Supreme Court to review the Third Circuit's decision.

Kalshi spokesperson Dani Lever said the company does not expect the Cincinnati decision to survive further legal scrutiny and called the state-by-state regulatory approach untenable. "Markets can't operate when the rules change at every state line," Lever said. "That is why Congress created a single federal regulator with nationwide rules."

Tennessee Attorney General Jonathan Skrmetti praised the decision as a "great win" for the state, stating that sports wagering is heavily regulated because it can cause significant harm. He added that the ruling prevents Kalshi from removing safeguards that protect Tennessee sports bettors.

The appeals court panel was composed of Judges Julia Smith Gibbons, Eric Clay, and Rachel Bloomekatz. Gibbons was appointed by former President George W. Bush, Clay by President Bill Clinton, and Bloomekatz by President Joe Biden. The decision vacates a preliminary injunction that had temporarily barred Tennessee from enforcing its gambling laws and upholds the denial of a similar injunction in Ohio.

The case highlights the growing tension between emerging digital wagering platforms and existing state regulatory frameworks, as well as the potential for the U.S. Supreme Court to resolve the jurisdictional dispute.