Kalshi's Sixth Circuit Loss: CFTC Registration Is Not a Shield

The Sixth Circuit Says Kalshi Failed to Show Its Sports Contracts Are Swaps

In a Friday, September 25, 2026 ruling, a unanimous Sixth Circuit panel held that Kalshi failed to show that its sports event contracts qualify as swaps under the Commodity Exchange Act. That ruling leaves Ohio and Tennessee free to treat the contracts as gambling. The decision in KalshiEX LLC v. Schuler and KalshiEX LLC v. Orgel, Nos. 26-3196 and 26-5235, affirmed the denial of Kalshi's preliminary injunction in Ohio and vacated the injunction Kalshi had won in Tennessee. The ruling deepens a circuit split with the Third Circuit's decision in KalshiEX LLC v. Flaherty, which sided with Kalshi, and joins the Ninth Circuit's decision in KalshiEX, LLC v. Assad, which did not.

But here is the part the headlines are missing. The panel did not stop at the swap question. It also held, in the alternative, that the CEA would not preempt either state's gambling laws even if the contracts were swaps. That second holding matters more for planning purposes. It means federal oversight is not a shield that a friendlier CFTC can restore through rulemaking.

Here is what happened, why it matters, and what your leadership team should decide before the Supreme Court acts.

Two Holdings, Not One: The Distinction Operators Are Missing

Most coverage treats this as a classification fight over whether a bet on a football game is a swap. It is that, but it is not only that. According to the court's opinion, the panel rested on two independent grounds.

• Ground one: Kalshi failed to show the contracts are swaps. Kalshi failed to show that its sports-event contracts qualify as swaps under the CEA's statutory definition, so it could not establish that they fall within the CFTC's exclusive jurisdiction.
• Ground two: no preemption even if they were swaps. Assuming the contracts were swaps, the CEA neither expressly nor impliedly preempts Ohio's or Tennessee's gambling laws. Kalshi's status as a CFTC-designated contract market did not change that result.

The difference between the two grounds has practical weight. A company that loses only on classification can hope that a regulator, a product redesign, or a new contract term moves the product into the swap category. A company that loses on preemption has no such option, because winning the classification argument still leaves state law in force. Under the Sixth Circuit's reasoning, a CFTC rule alone cannot change that outcome.

The ruling has limits. It reviews preliminary injunctions, not final judgments, and both cases were remanded for further proceedings. Still, the opinion is recommended for publication, so it binds federal courts across Ohio, Michigan, Kentucky, and Tennessee. As Bloomberg Law reported, Kalshi is now subject to enforcement in Ohio and Tennessee.

The Circuit Split Now Runs Two Against One

Three federal appellate courts have now ruled on these contracts, and they disagree.

• Third Circuit, April 6, 2026 (for Kalshi). A divided 2-1 panel, with Judge Roth dissenting, affirmed a preliminary injunction barring New Jersey from enforcing its gambling laws in KalshiEX LLC v. Flaherty, 172 F.4th 220.
• Ninth Circuit, August 28, 2026 (against Kalshi). A panel unanimous in its disposition, with Judge Lee concurring, in KalshiEX, LLC v. Assad, No. 25-7516, held that Kalshi failed to show the CEA preempts Nevada gaming regulation of its sports contracts. The panel addressed swap classification and rejected conflict and field preemption. It affirmed dissolution of the Nevada injunction as to sports contracts and remanded the election-contract question.
• Sixth Circuit, September 25, 2026 (against Kalshi). The panel was unanimous and added the alternative preemption holding.

The result is one product with two legal answers: New Jersey is enjoined from enforcing its gambling laws against Kalshi's sports contracts under a preliminary injunction, while Nevada, Ohio, and Tennessee are free to enforce theirs.

New Jersey's petition for certiorari, Flaherty v. KalshiEX, LLC, No. 26-299, was docketed September 8, 2026. On September 22, 2026, the response deadline was extended to November 9, 2026. The Court has not granted review, and no one can responsibly predict when or whether it will.

Why the CFTC's Pending Prediction Market Rule Does Not Fix This

Many prediction market operators have been counting on a federal fix. The CFTC issued its proposal, Prediction Markets; Public Interest Determinations (RIN 3038-AF65), on June 10, 2026. It was published June 12, 2026 at 91 Fed. Reg. 35806, and comments closed July 27, 2026. It remains a proposal, not a final rule. With the comment period closed, the CFTC must review the comments, decide whether to revise the proposal, and vote on a final rule before it can be published in the Federal Register and take effect. Even then, a final rule can be challenged in court.

That proposal addresses the wrong question. A public interest determination tells exchanges which event contracts the CFTC will permit them to list. It governs the federal side of the ledger.

Statute versus rule

Both Sixth Circuit holdings turn on what Congress wrote in the CEA. One is the statutory definition of a swap. The other is whether the statute displaces state gambling law. The CFTC can further define terms by rule, but the panel's alternative holding means even a contract that qualifies as a swap remains subject to state gambling law. Under the panel's reasoning, a final CFTC rule could approve every sports contract on the market and Ohio could still enforce its gambling laws against them.

That math does not hold up for any business plan built on waiting for Washington. A product roadmap that assumes federal approval will end state exposure is betting on a lever the Sixth Circuit just disconnected.