Two Circuits Just Disagreed About What a Swap Is. The Prediction Market Is 1-For-3.

A prediction market is either a federally regulated derivatives exchange or an offshore sportsbook with better fonts, and two federal appeals courts now formally disagree about which. On September 25, the Sixth Circuit ruled in KalshiEX LLC v. Schuler that Ohio and Tennessee can enforce their sports-gambling laws against Kalshi's event contracts, vacating the injunction that had protected it in Tennessee and upholding the denial of one in Ohio. The platform is now one for three in the circuit courts, and the same statute has produced opposite definitions of a swap.

What the Sixth Circuit held

The unanimous panel's reasoning ran through the Commodity Exchange Act. Kalshi's defense is that its sports contracts are swaps, and that swaps sit inside the CFTC's exclusive federal jurisdiction, where state gambling law cannot reach. The Sixth Circuit narrowed the swap definition and held Kalshi had not shown its sports event contracts qualify, with the panel pointing to Kalshi's own earlier concession that the contracts have no inherent economic significance, per The Block's account of the ruling. If the contracts are not swaps, there is no federal preemption, and state sports-betting law applies at full force.

The injunction outcomes were the practical teeth: the middle district of Tennessee's injunction was vacated, and Ohio's denial of an injunction stood. Regulators in both states can now proceed against the platform's sports contracts. The contracts keep trading elsewhere under other courts' injunctions, which is how a federal jurisdictional question becomes a state-by-state patchwork in real time.

The split, in one table

The Third Circuit went the other way earlier this year, affirming 2-1 that New Jersey could not enforce its gambling laws against Kalshi because the sports contracts satisfy the CEA's swap definition, payments being dependent on the occurrence of an event. The Ninth Circuit had already ruled against the platform in August, finding sports event contracts not swaps under the statute. Three circuits, one platform, two answers.

Why this is a market-structure story, not a betting story

The commercial question under all of this is where federal derivatives jurisdiction ends. Event contracts have been the fastest-growing corner of retail finance, precisely because they borrowed the machinery of a regulated futures exchange: CFTC registration, a designated contract market, central clearing conventions. The courts are now deciding whether that machinery actually confers the legal status it was built to resemble. If sports contracts are not swaps, then the swap definition has a boundary, and everything outside it is state gambling law, state consumer protection, and fifty different enforcement regimes.

For the exchanges themselves, the Sixth Circuit's reasoning is the dangerous kind, because it narrows the swap definition rather than just deciding one case. A narrowed definition reaches past sports contracts toward every event market whose payout is not tethered to an underlying economic exposure. Prediction markets built their growth on the assumption that the CEA's definition was broad. One circuit has now said it is not, and a second agreed.

What to watch

Three checkpoints. First, the certiorari petition: Sportico assessed the Supreme Court review likelihood as rising after the split hardened, and a genuine circuit split on a federal jurisdictional statute is the classic cert case. Second, what the CFTC itself does: the agency's own view of its jurisdiction is now in tension across circuits, and regulators do not sit out fights over their own authority. Third, the state enforcement wave: with Tennessee's injunction vacated, the first state enforcement action against a CFTC-registered exchange's listed contracts becomes the test of what the ruling actually means on the ground.

The takeaway is the one this report keeps finding at the bottom of deregulation fights. The boundary between federal and state jurisdiction was drawn for markets that no longer exist, and when the statute is ambiguous, the courts are drawing it one circuit at a time. Few understand this.

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