Sixth Circuit Rejects Federal Preemption Over State Sports-Betting Laws
The Sixth Circuit ruled Kalshi's sports-event contracts aren't swaps and upheld state gambling laws.
Why it matters: This decision limits federal preemption under the Commodity Exchange Act, reinforcing states' regulatory authority over sports betting. It signals legal complexities for firms navigating state versus federal gambling and derivatives regulation.
- On September 25, 2026, Sixth Circuit decided KalshiEX LLC v. Schuler, narrowing 'swap' definition.
- Court ruled contracts do not meet CEA's swap definition, rejecting federal preemption of Ohio and Tennessee gambling laws.
- Contrasts with Third Circuit's ruling in KalshiEX, LLC v. Flaherty, which preempted state laws.
- Allows Ohio and Tennessee to enforce gambling laws against Kalshi's sports-event contracts.
On September 25, 2026, the U.S. Court of Appeals for the Sixth Circuit issued a pivotal ruling in KalshiEX LLC v. Schuler, holding that Kalshi's sports-event contracts do not satisfy the Commodity Exchange Act's (CEA) definition of "swaps." The court stated explicitly that Kalshi failed to prove its contracts fall within the CFTC's exclusive jurisdiction granted by the CEA. Judge Julia Smith Gibbons wrote, "We hold 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.'" (NatLawReview).
Further, the court rejected that the CEA preempts Ohio’s and Tennessee’s state gambling laws, thereby authorizing those states to enforce their regulatory regimes against Kalshi’s sports betting contracts. This ruling opposed the Third Circuit’s earlier decision in KalshiEX, LLC v. Flaherty, which had found such contracts to be swaps and held federal law trumped state gambling restrictions (HKLaw).
This ruling highlights an emerging circuit split over how financial derivatives involving sports events, such as prediction market contracts, are classified and regulated. It preserves states’ rights in a growing legal battleground between federal regulatory frameworks and state gambling statutes, impacting how legal teams and regulators approach compliance and enforcement in this space.
By the numbers:
- September 25, 2026 — Sixth Circuit ruling date
- 2 states — Ohio and Tennessee upheld their gambling laws
- 2 circuits — Sixth and Third circuits present conflicting rulings on swap definitions
Yes, but: The ruling deepens a circuit split with the Third Circuit, creating legal uncertainty until resolved by the Supreme Court or Congress.
What's next: Potential appeals or Supreme Court review may clarify federal versus state regulatory authority in sports betting and related markets.