Breaking The Sixth Circuit Gave Kalshi Two Ways to Lose, and Only One of Them Can Be Engineered Around

A three-judge panel in Cincinnati handed Kalshi the worst kind of loss on Friday: the kind with a backup.

The Sixth Circuit ruled that Ohio and Tennessee may enforce their gambling laws against Kalshi's sports event contracts. Judge Julia Smith Gibbons wrote for a unanimous panel that also included Eric Clay and Rachel Bloomekatz. The court affirmed the Southern District of Ohio's refusal to enjoin Ohio's regulators and vacated the Middle District of Tennessee's order that had blocked Tennessee's. Kalshi came into Friday with one injunction protecting it in the circuit. It leaves with none.

The headline finding is that these contracts are not swaps. That is the finding the wires led with, and it is the one Kalshi will spend the weekend responding to. It is also the less dangerous of the two.

The holding that matters is the one labelled "alternatively"

Gibbons did not stop at the definition. Having concluded that Kalshi failed to show its sports contracts meet the statutory definition of a swap, the panel wrote that "even assuming Kalshi's sports-event contracts constitute swaps for the purposes of this analysis, we alternatively hold that the CEA neither expressly nor impliedly preempts the States' gambling laws."

Read that twice, because it removes the exit.

A product-definition loss is survivable. If the problem is that a contract on the Bengals covering is not a swap, you go back to the drafting table. You bundle the outcome with something that has a defensible commercial hedge. You restructure the payout. You file a new product self-certification and dare the CFTC to reject it. Every exchange lawyer in the country has spent the past eighteen months thinking about exactly that, and the Third Circuit's April decision gave them a map of what a winning definition looks like.

A preemption loss closes that road. If the Commodity Exchange Act does not displace state gambling law, then it does not matter what the contract is called. Ohio's statute reaches it because Ohio says gambling is gambling, and Congress — on this panel's reading — never told Ohio to stop. Redrafting the product does not help you. Winning at the CFTC does not help you. The only thing that helps you is a higher court.

Where the split actually stands now

The scoreboard is worse for Kalshi than the "circuit split" framing suggests, and the reason is buried in New Jersey's certiorari petition, which we read in full rather than taking from a summary.

The Third Circuit's decision in KalshiEX, LLC v. Flaherty, No. 25-1922, came down on April 6, 2026 — a date we could not confirm in this column last week and can now confirm from the petition's own Statement of Related Proceedings. It was 2-1. That is Kalshi's only appellate win, and it came from a divided panel.

Against it: the Ninth Circuit in Kalshi v. Assad, 2026 WL 2543846, decided August 28, which New Jersey's lawyers describe as "explicitly disputing both the Third Circuit's methodology and its conclusion." And now the Sixth, unanimous, with an alternative holding.

One divided panel for, two unanimous panels against. New Jersey filed for certiorari on September 2. Its question presented is narrow and well aimed:

Whether the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act preempted States from regulating sports bets that occur within their jurisdictions if those bets are offered on markets registered with the Commodity Futures Trading Commission.

The petition also says something the trade press has largely skipped: Kalshi, its competitors and the CFTC "have either initiated or forced litigation with 20 States." Twenty. This is not a handful of hostile attorneys general. It is most of the country with a sports-betting statute.

What is actually at stake in dollars

Pew put numbers on the business this week that make the legal exposure legible. Combined monthly volume across Kalshi and Polymarket went from $26 billion in May to $53 billion in July, then eased to $47 billion in August. In July, sports was $31.4 billion of Kalshi's volume. Politics — the thing these venues were built for, the thing that justified the regulatory posture — was $169.2 million.

That ratio is roughly 186 to one. The category the Sixth Circuit just handed to the states is not a segment of Kalshi's business. It is the business, with a research-grade politics market attached to it for atmosphere.

Pew's figures are notional taker volume from The Block, which counts each contract at its $1 face value rather than its traded price. That overstates dollars at risk and understates nothing about mix. The ratio is the point, and the ratio is not close.

The strongest case for Kalshi, stated fairly

Here is the best version of the other side, and it is not weak.

Kalshi's argument has never really been that a Bengals contract looks like an interest-rate swap to a layperson. It is that Congress, in 2010, handed the CFTC a deliberately broad definitional net and an explicit special-rule process for reviewing event contracts against the public interest — and that letting fifty states each make their own call about which federally listed products may trade destroys the national market Congress built. The Third Circuit majority found that persuasive. So did the CFTC, which filed an amicus brief on the industry's side in the Ninth Circuit in February and another in this very Sixth Circuit case in May. When the agency Congress charged with administering the statute tells two courts of appeals that its jurisdiction is exclusive and both courts say otherwise, something genuinely unsettled is happening. That is the classic profile of a case the Supreme Court takes.

It is also, we think, the profile of a case the Supreme Court takes and Kalshi loses.

The Ohio brief is worth reading on this point, because the Commission did not hedge. Filed on May 12 under the signature of General Counsel Tyler S. Badgley, it argued that event contracts on CFTC-regulated markets are swaps, and then argued preemption three separate ways — express, field, and conflict. It told the panel that subjecting derivatives listed on a registered contract market to state regulation would have "destabilizing effects." The panel took the maximalist version of the federal position, considered it, and wrote an alternative holding rejecting express and implied preemption anyway. An agency that briefs three theories and loses on all of them has not been misunderstood. It has been disagreed with.

Murphy v. NCAA — cited on the petition's first page — is the reason. In 2018 the Court struck down a federal statute precisely because it commandeered state authority over sports wagering, and said each state "is free to act on its own." Asking the same Court to now find that a 2010 financial-reform statute silently federalised the identical subject matter, without saying so, is asking for a reading of congressional intent that cuts directly against the presumption the Court has been applying to state police powers for decades. The Sixth Circuit's layperson passage is doing that work: if an ordinary person cannot see the economic consequence in a contract on a football game, it is a stretch to call it "associated" with one. That is not a technical objection. It is a judge saying the emperor's swap has no clothes.

What would change our mind

We are stating a view, so we should state the test.

If the Court grants certiorari in Flaherty and the CFTC finishes its public-interest rulemaking with a rule that expressly occupies the field on sports event contracts, the preemption analysis in Friday's opinion gets materially harder to sustain — express preemption arguments are much stronger when an agency has actually spoken through notice-and-comment rather than through amicus briefs. Forty-four states filed a comment letter against that rule on July 27. Watch what the final rule says, not what the litigants say about it.

And if the Court denies certiorari, the fight does not end. It fragments. Kalshi keeps sports contracts in the Third Circuit and loses them in the Sixth and Ninth, and a national exchange becomes a regional one, drawn along the boundaries of federal judicial districts. That is an absurd map for a market that settles on the same NFL game everywhere. It is also, as of Friday afternoon, the default outcome.

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Editor's note: TrueEdge builds odds and pricing tools and earns affiliate commissions from licensed sportsbooks. That is a commercial interest in how this fight resolves, and readers should weigh this piece accordingly. Our position — that criminalising federally licensed exchanges is bad policy even where we think the legal argument for preemption is losing — is argued here as commentary, not reported as fact.