Prediction markets are booming.
But a recent federal court decision could make operating them more complicated.
On September 25, 2026, a federal appeals court ruled against Kalshi in its battles with Ohio and Tennessee.
Kalshi operates a federally regulated prediction market. Users can trade contracts based on whether certain events will happen, including the sports results.
Kalshi argued that because it is regulated by the Commodity Futures Trading Commission (CFTC), states cannot apply gambling regulations.
The Sixth Circuit disagreed.
That decision could have significant consequences for prediction markets. Other businesses operating at the intersection of finance, technology and gambling could be affected.
What Happened?
Kalshi lets users buy and sell contracts tied to real-world events, including sports.
But Kalshi does not characterize itself as a traditional sportsbook. Instead, it operates as a federally regulated financial exchange known as a Designated Contract Market.
That distinction is at the center of the controversy.
Kalshi argued that users were trading federally regulated event contracts, not placing traditional sports bets. Because their contracts are offered through a CFTC-regulated exchange, Kalshi maintains that federal commodities law governs them. As a result, individual states cannot regulate their activity as gambling.
Ohio and Tennessee see it differently. State regulators view certain Kalshi sports contracts as gambling products subject to state law.
The Sixth Circuit sided with the states.
The court concluded that Kalshi had not established that its sports-event contracts qualified as “swaps” under the Commodity Exchange Act. It also rejected Kalshi’s broader argument that federal law prevented Ohio and Tennessee from enforcing their gambling laws.
The bottom line is simple: being regulated by the CFTC did not automatically shield Kalshi’s sports contracts from state gambling laws.
Why Does This Matter?
The ruling raises a much bigger question.
When does a prediction market become gambling?
A contract based on interest rates or economic data may look like a traditional financial product.
A contract asking whether the New York Yankees will win a baseball game may look more like a sports wager.
That distinction matters because financial markets and gambling businesses operate under very different regulatory systems.
The Sixth Circuit’s ruling suggests that companies cannot simply assume federal commodities regulation eliminates state gaming jurisdiction.
Prediction Markets Could Face a State-by-State Problem
The decision could also make compliance more complicated.
If states are permitted to regulate certain prediction contracts as gambling, companies may need to consider the laws of every state where they operate.
Those differences could affect everything from the products a company offers to its licensing, advertising and marketing.
For startups and established businesses alike, launching nationally before understanding those distinctions can create significant legal exposure.
The Legal Fight Is Not Over
The Sixth Circuit is not the only appeals court considering this issue.
Other courts have reached different conclusions in disputes involving Kalshi.
Legal boundaries surrounding prediction markets remain unsettled.
For businesses, waiting for a final nationwide answer may not be practical.
Companies operating in this space still have products to launch, contracts to negotiate, partnerships to form and users to serve.
That makes regulatory planning important now.
What Businesses Should Consider
Prediction markets sit at the intersection of several areas of law.
Depending on the product, a company may need to consider federal commodities regulation, state gaming laws, licensing requirements, advertising restrictions and consumer protection rules.
A regulatory problem discovered after a platform goes live can be much more expensive than one identified during development.
That is where experienced legal counsel can make a difference.
Romano Law advises businesses on regulatory compliance, corporate transactions, commercial contracts and disputes. For companies operating in emerging industries, those areas often overlap.
Prediction market companies are well advised to evaluate regulatory exposure before launch.
They may also need help negotiating agreements with vendors, technology providers and business partners. Navigating expansion into new states and responding to regulatory challenges is also crucial.
What Comes Next?
The Kalshi decision sends a practical message.
Federal law may not be the only regulation that matters.
Companies operating prediction markets (and other businesses that may blur the lines between finance, technology and gaming) should consider both federal and state law before entering a market.
As prediction markets continue to grow, the regulatory lines surrounding them will likely continue to be tested. For businesses in this space, understanding where those lines may be drawn can be just as important as the markets they create.
Contributions to this blog by Kennedy McKinney.
