Kalshi loses again as judges rule prediction markets must obey gambling laws

“Kalshi’s contracts fall within the CFTC’s exclusive jurisdiction,” Kalshi told the Sixth Circuit. The CFTC backed Kalshi in an amicus brief and has separately sued nine states in lawsuits that allege the states are infringing on the CFTC’s exclusive jurisdiction. The Sixth Circuit was the third federal appeals court to rule on whether states can regulate gambling on Kalshi. There was already a circuit split, as Kalshi scored a victory in a Third Circuit ruling involving New Jersey and lost a Ninth Circuit case involving Nevada. State governments now have two major victories to Kalshi’s one, and a Fourth Circuit case involving Maryland is still pending. New Jersey recently asked the Supreme Court to settle the matter for the whole country. Under US law, swaps include contracts that are dependent on events “associated with a potential financial, economic, or commercial consequence.” Whether a sporting event has such a consequence is one of the key questions courts have been trying to answer. The Sixth Circuit judges decided that “for an ‘event’ to be ‘associated with a potential financial, economic, or commercial consequence,’ the 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).” Kalshi’s sports-event contracts are not swaps because, unlike “contracts based on financial values or instruments (e.g., interest rates or stock prices), Kalshi’s sports-event contracts have only downstream economic consequences, assuming they have the potential to cause economic consequences at all,” the court said. In a statement it provided to Ars, Kalshi criticized the ruling. “We disagree with this decision and don’t believe it will survive further review,” Kalshi said. “The law does not require a swap to involve ‘intrinsic’ financial consequences—and even if it did, sports clearly do.” Kalshi claimed that different courts issuing different rulings on the same question is proof that there should be a single national standard. “The ruling shows exactly why a state-by-state patchwork doesn’t work,” Kalshi said. “Courts can’t agree on the basics: Some say federal law covers these contracts, and others say it doesn’t. Some recognize that sports have real economic impact, while others (incorrectly) claim they don’t. Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules.” Obviously, companies in the US have always faced different laws in different states, and it’s not uncommon for an appellate court in one circuit to reach a different conclusion than an appellate court in another circuit. The Sixth Circuit ruling noted that courts have split on the questions raised by Kalshi, but said that Supreme Court precedents require Congress to act definitively when it intends to preempt state law. “Principles of federalism further support our conclusion,” the ruling said. “Courts should not assume ‘a significant change in the sensitive relation between’ federal and state governments in an area of ‘traditional state authority.’ Indeed, the Supreme Court requires ‘Congress to enact exceedingly clear language if it wishes to significantly alter the balance between federal and state power’ in such an area.”